The following financial statement data for years ending December 31 for Pinnell Company are shown below. a.
Question:
a. Determine inventory turnover for 2012 and 2011.
b. Determine the number of days sales in inventory for 2012 and 2011. Round to one decimal place.
c. Does the change in inventory turnover and the number of days sales in inventory from 2011 to 2012 indicate a favorable or unfavorabletrend?
2012 2011 Cost of merchandise sold Inventories: $1,800,000 1,428,000 Beginning of year End of year $570,000 630,000 $450,000 570,000
Step by Step Answer:
a Inventory Turnover 2012 2011 Cost of merchandise sold 1800000 1428000 Inventories ...View the full answer
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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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