Early in 2012, Paulo Company switched to a just-in-time inventory system. Its sales, cost of goods sold,
Question:
Early in 2012, Paulo Company switched to a just-in-time inventory system. Its sales, cost of goods sold, and inventory amounts for 2011 and 2012 are shown below.Determine the inventory turnover and days in inventory for 2011 and 2012. Discuss the changes in the amount of inventory, the inventory turnover and days in inventory, and the amount of sales across the twoyears.
2011 $3,120,000 1,200,000 2012 Sales Cost of goods sold Beginning inventory Ending inventory $3,713,000 1,425,000 180,000 80,000 220,000
Step by Step Answer:
2011 2012 Inventory turnover ratio 1200000 6 1425000 95 180000 2200002 220000 800002 Days in inv...View the full answer
Accounting Principles
ISBN: 978-0470534793
10th Edition
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso
Related Video
Inventory turnover is a key metric that helps businesses evaluate the efficiency of their operations. A high turnover ratio is generally considered positive, indicating that the company is effectively selling its inventory and making efficient use of its resources. On the other hand, a low turnover ratio may indicate issues such as overstocking or slow sales and may require further examination to identify and address the underlying causes. Businesses use this ratio to make decisions about inventory levels, production schedules, and pricing strategies. It also helps businesses to identify areas where they may need to make improvements, such as reducing lead times for production or optimizing sales and marketing efforts. Additionally, inventory turnover is used by investors and analysts as a key performance indicator to evaluate the financial health and growth potential of a company.
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