Question

Calculating the Average Inventory, the Inventory Turnover Ratio, and the Inventory Turnover in Days

Last year, Nikkola Company had net sales of $2,299,500,000 and cost of goods sold of $1,755,000,000. Nikkola had the following balances:

	January 1	December 31
Accounts receivable	$142,650,000	$172,350,000
Inventory	54,374,200	62,625,800

Required:

Note: Round answers to one decimal place. Assume 365 days per year.

1. Calculate the average inventory.
$

2. Calculate the inventory turnover ratio.
times

3. Calculate the inventory turnover in days.
days

4. CONCEPTUAL CONNECTION Based on these ratios, does Nikkola appear to be performing well or poorly?

Based on the ratios Nikkola is performing very well.

Based on the ratios Nikkola is not performing as expected.

Without more detailed information on Nikkola's and its industry, it is difficult to classify these results as outstanding, poor, or somewhere in between

Answer 1

(1)-Average Inventory

Average Inventory = [Inventory at the year beginning + Inventory at the year-end] / 2

= [$54,374,200 + $62,625,800] / 2

= $117,000,000 / 2

= $58,500,000

(2)-Inventory Turnover Ratio

Inventory Turnover Ratio = Cost of goods sold / Average Inventory

= $1,755,000,000 / $58,500,000

= 30.00 Times

(3)-Inventory Turnover in days

Inventory Turnover in days = Number of days in a year / Inventory Turnover Ratio

= 365 Days / 30.00 Times

= 12.17 Days

(4)- Without more detailed information on Nikkola's and its industry, it is difficult to classify these results as outstanding, poor, or somewhere in between