exercise 5 - 21 (algo) inventory turnover and days sales in inventory lo a3\nthe following is information…

exercise 5 - 21 (algo) inventory turnover and days sales in inventory lo a3\nthe following is information for palmer company.\ncost of goods sold ending inventory\nyear 3 $598,825 100,900\nyear 2 $381,650 91,250\nyear 1 $346,300 96,000\nuse the above information to compute inventory turnover for year 3 and year 2, and its days sales in inventory at december 31, year 3 and year 2. from year 2 to year 3, did palmer improve its\n(a) inventory turnover and\n(b) days sales in inventory?\nuse the above information to compute inventory turnover for year 2, and its days sales in inventory at december 31, year 2.\ninventory turnover numerator / denominator ratio\ndays sales in inventory\nuse the above information to compute inventory turnover for year 3, and its days sales in inventory at december 31, year 3.\ninventory turnover numerator / denominator ratio\ndays sales in inventory\ndid palmer improve its (a) inventory turnover from year 2 to year 3 and (b) days sales in inventory from year 2 to year 3?\n(a) did palmer improve its inventory turnover from year 2 to year 3?\n(b) did palmer improve its days sales in inventory from year 2 to year 3?

exercise 5 - 21 (algo) inventory turnover and days sales in inventory lo a3\nthe following is information for palmer company.\ncost of goods sold ending inventory\nyear 3 $598,825 100,900\nyear 2 $381,650 91,250\nyear 1 $346,300 96,000\nuse the above information to compute inventory turnover for year 3 and year 2, and its days sales in inventory at december 31, year 3 and year 2. from year 2 to year 3, did palmer improve its\n(a) inventory turnover and\n(b) days sales in inventory?\nuse the above information to compute inventory turnover for year 2, and its days sales in inventory at december 31, year 2.\ninventory turnover numerator / denominator ratio\ndays sales in inventory\nuse the above information to compute inventory turnover for year 3, and its days sales in inventory at december 31, year 3.\ninventory turnover numerator / denominator ratio\ndays sales in inventory\ndid palmer improve its (a) inventory turnover from year 2 to year 3 and (b) days sales in inventory from year 2 to year 3?\n(a) did palmer improve its inventory turnover from year 2 to year 3?\n(b) did palmer improve its days sales in inventory from year 2 to year 3?

Answer

Explanation:

Step1: Recall inventory turnover formula

Inventory turnover = $\frac{\text{Cost of goods sold}}{\text{Average inventory}}$. For simplicity, we use ending inventory as a proxy here.

Step2: Calculate inventory turnover for Year 2

Inventory turnover for Year 2 = $\frac{381650}{91250}=4.18$

Step3: Calculate days' sales in inventory for Year 2

Days' sales in inventory = $\frac{\text{Ending inventory}}{\text{Cost of goods sold}}\times365$. So for Year 2, it is $\frac{91250}{381650}\times365\approx87.3$ days

Step4: Calculate inventory turnover for Year 3

Inventory turnover for Year 3 = $\frac{598825}{100900}=5.93$

Step5: Calculate days' sales in inventory for Year 3

Days' sales in inventory for Year 3 = $\frac{100900}{598825}\times365\approx61.4$ days

Step6: Analyze improvement

For inventory turnover, since $5.93>4.18$, Palmer improved its inventory - turnover from Year 2 to Year 3. For days' sales in inventory, since $61.4 < 87.3$, Palmer improved its days' sales in inventory from Year 2 to Year 3.

Answer:

Numerator Denominator Ratio
Inventory turnover (Year 2) 381650 91250 4.18
Days' sales in inventory (Year 2) 91250 381650 87.3 days
Inventory turnover (Year 3) 598825 100900 5.93
Days' sales in inventory (Year 3) 100900 598825 61.4 days
Did Palmer improve its inventory turnover from Year 2 to Year 3? Yes
Did Palmer improve its days' sales in inventory from Year 2 to Year 3? Yes