Question

nventory Turnover for Butterworth Machine

The following amounts are available from the 2015 financial statements in the Form 10-K for Butterworth Machine, Inc., the fashion retailer. (All amounts are in millions of dollars and January 30, 2016, is the end of the company’s 2015 fiscal year.)

Cost of sales and related buying and occupancy costs	$6,359
Merchandise inventories, January 30, 2016	1,337
Merchandise inventories, January 31, 2015	1,258

Required:

1. Compute Butterworth Machine's inventory turnover ratio for 2015. If required, do not round intermediate calculations and round your final answer to two decimal places. Use rounded answer in the subsequent calculations.
times

2. What is the average length of time it takes to sell an item of inventory? Assume a 360-day year. When required, round your answer to the nearest whole number.
days

3. What additional information would help Butterworth Machine determine whether the time it takes it to sell inventory on average is reasonable?

Answer 1

1) Inventory turn over ratio = Cost of goods sold / Average Inventory

   Average Inventory = Beginning Inventory + Ending Inventory / 2 = [ 1337+1258] / 2 =1297.5

   Cost of goods sold = $6359

   Inventory turnover ratio = $6359 / 1297.5 = 4.90 times

2)

Average length of time to sell an item of inventory = 360/Inventory ratio = 360/4.90 =

73 or 74

Days

3) Addition information required would be Average turnover and length of time required by the industry