Question

question 24

The following data were taken from Castle, Inc.

Cost of goods sold		$894,000
Inventory, end of year		78,000
Inventory, beginning of the year		92,000

Determine the inventory turnover ratio and the number of days' sales in inventory for Castle Inc. Round to two decimal places. Use a 365-day year.

Inventory turnover	fill in the blank 1
Number of days' sales in inventory	fill in the blank 2 days

Answer 1

Solution: According to the Question, we need to calculate Inventory Turnover Ratio and the number of days' sales in inventory for Castle Inc.

(i) First, we will calculate Inventory Turnover Ratio:

Inventory Turnover Ratio Formula= Cost of Goods Sold/ Average Inventory

Cost of Goods sold=$894,000 (given)

*Calculation of Average Inventory:-

Average Inventory= Beginning Inventory+Ending Inventory/2

=$92,000+$78,000/2= $170,000/2= $85,000

Inventory Turnover Ratio =$894,000 / $85,000= 10.52 Times

(ii)Next, we will calculate Number of days' sales in inventory:

Number of days' sales in inventory= Number of Days in a year/Inventory Turnover Ratio

=365 days/10.52 times= 34.70 days

Final Answer:

Inventory Turnover Ratio	10.52 times
Number of days' sales in inventory	34.70 days