Early in 2015, Chien Company switched to a just-in-time inventory system. Its sales revenue, cost of goods
Question:
Early in 2015, Chien Company switched to a just-in-time inventory system. Its sales revenue, cost of goods sold, and inventory amounts for 2014 and 2015 are shown below.
Determine the inventory turnover and days in inventory for 2014 and 2015. Discuss the changes in the amount of inventory, the inventory turnover and days in inventory, and the amount of sales revenue across the twoyears.
2014 2015 $3,120,000 $3,713,000 Sales revenue Cost of goods sold Beginning inventory Ending inventory 1,200,000 180,000 220,000 1,425,000 220,000 100,000
Step by Step Answer:
2014 2015 Inventory turnover 1200000 6 1425000 89 180000 2200002 220000 1000002 Days in inventor...View the full answer
Financial Accounting
ISBN: 9781118334324
9th Edition
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso
Related Video
Inventory turnover is a key metric that helps businesses evaluate the efficiency of their operations. A high turnover ratio is generally considered positive, indicating that the company is effectively selling its inventory and making efficient use of its resources. On the other hand, a low turnover ratio may indicate issues such as overstocking or slow sales and may require further examination to identify and address the underlying causes. Businesses use this ratio to make decisions about inventory levels, production schedules, and pricing strategies. It also helps businesses to identify areas where they may need to make improvements, such as reducing lead times for production or optimizing sales and marketing efforts. Additionally, inventory turnover is used by investors and analysts as a key performance indicator to evaluate the financial health and growth potential of a company.
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