A manufacturing company reports the following information. Required 1. Compute raw materials inventory turnover for the most
Question:
A manufacturing company reports the following information.
Required
1. Compute raw materials inventory turnover for the most recent two years.
2. Is the current year change in raw materials inventory turnover ratio favorable or unfavorable?
3. Compute days’ sales in raw materials inventory for the current year.
Current Year 1 Year Ago 2 Years Ago Raw materials inventory, ending $ 270,225 $ 259,775 $ 230,225 Raw materials used 2,385,000 2,695,000 2,700,000
Step by Step Answer:
1 2 Unfavorable Explanation Raw materials ...View the full answer
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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