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

Last year, Dogwood Company had net sales of $9,375,000 and cost of goods sold of $4,760,000. Dogwood had the following balances:

	January 1	December 31
Accounts receivable	$725,000	$775,000
Inventory	450,000	425,000

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

3

Answer 1

1

Average Inventory = (Beginning Inventory + Ending Inventory) / 2

Average Inventory = (450000+425000)/2= $437500

2

Inventory turnover ratio = Cost of goods sold/Average inventory

Inventory turnover ratio = 4760000/437500= 10.9 times

3

Inventory turnover in days = 365/Inventory turnover ratio.

Inventory turnover in days = 365/10.9= 33.5 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