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Answer:
Inventory turnover
Year 3 6.95 times
Year 2 4.73 times
Year 1 4.23 times
Days Sales In Inventory
Year 3 55.22 days
Year 2 75.07 days
Year 1 86.28 days
Explanation:
Inventory turnover is the ratio that how many time a business has sold or replaced the inventory during a given period. A business is considered more profitable if it has high inventory turnover.
According to given data
Year 3 Year 2 Year 1
Merchandise inventory 97,400 87,750 92,500
Cost of goods sold $643,825 $426,650 $391,300
Inventory turnover = Cost of Goods Sold / Average Inventory value
Inventory turnover= Cost of Goods Sold / [ ( Opening Inventory + Closing Inventory ) / 2 ]
Year 3
Inventory Turnover = $643,825 / [ ( 97400 + 87750 ) / 2 ] = 6.95
Year 2
Inventory Turnover = $426,650 / [ ( 87750 + 92500 ) / 2 ] = 4.73
Year 1
Inventory Turnover = $391,300 / 92500 = 4.23
As there will be no Beginning inventory so average inventory will be same as the closing inventory is the same as the Closing Inventory.
Days Sales In Inventory = 365 x Ending Inventory / Cost of Goods Sold
Year 3
Days Sales In Inventory = 365 x 97,400 / $643,825 = 55.22 days
Year 2
Days Sales In Inventory = 365 x 87,750 / $426,650 = 75.07 days
Year 1
Days Sales In Inventory = 365 x 92,500 / $391,300 = 86.28 days
The inventory turnover ratio measures how quickly a company generates sales from its stock and how quickly it does. The inventory turnover ratio for year 1, year 2, and year 3 are 4.23 times, 4.73 times, and 4.61 times.
What is Inventory Turnover Ratio?
Inventory turnover ratio is the amount of time an entity sells or exchanges the stock over a given period of time. A business is considered to be very profitable if it has a high turnover ratio.
[tex]\rm\,Inventory\,Turnover\,Ratio =\dfrac {Cost\,of\,Goods\,Sold}{Average\, Inventory}[/tex]
To calculate Days' Sales, the formula given as below:
[tex]\rm\,Days' \,Sales = \dfrac{Ending \,Inventory }{Cost\,of \,Goods\,Sold}\times 365[/tex]
As per the given information:
Year 1, Calculation of Inventory Turnover Ratio:
For average inventory calculation, we need beginning inventory and closing inventory. As beginning inventory is not given therefore we will take closing inventory as average inventory.
[tex]\rm\,Inventory\,Turnover\,Ratio =\dfrac {391,300}{92,500}\\\\\rm\,Inventory\,Turnover\,Ratio = 4.23 Times[/tex]
Year 2, Calculation of Inventory Turnover Ratio:
Closing inventory of year 1 will be beginning inventory for Year 2.
[tex]\rm\,Inventory\,Turnover\,Ratio =\dfrac {426,650}{\frac{( 87750 + 92500 )}{2} }\\\\\\rm\,Inventory\,Turnover\,Ratio = \dfrac {426,650}{90,125}\\\\\rm\,Inventory\,Turnover\,Ratio = 4.73 \,Times[/tex]
Year 3, Calculation of Inventory Turnover Ratio:
[tex]\rm\,Inventory\,Turnover\,Ratio =\dfrac {643,825}{\frac{( 97400 + 87750 )}{2} }\\\\\ \rm\,Inventory\,Turnover\,Ratio = \dfrac {426,650}{92,575}{90,125}\\\\\rm\,Inventory\,Turnover\,Ratio = 4.61 \,Times[/tex]
Now Calculating Days' Sales for Year, Year 2, and Year 3:
As average inventory is not given, we will ending inventory as average inventory.
Year 1, Calculation of Days' Sales:
[tex]\rm\,Days' \,Sales = \dfrac{92,500 }{391,300}\times 365\\\\\rm\,Days' \,Sales = 86.28\, Days[/tex]
Year 2, Calculation of Days' Sales:
[tex]\rm\,Days' \,Sales = \dfrac{87,750 }{426,650}\times 365\\\\\rm\,Days' \,Sales = 75.07 \, Days[/tex]
Year 3, Calculation of Days' Sales:
[tex]\rm\,Days' \,Sales = \dfrac{97,400 }{643,825}\times 365\\\\\rm\,Days' \,Sales = 55.22 \, Days[/tex]
Hence, the Inventory turnover ratio for years 1,2, and 3 are 4.23 times, 4.73 times, and 4.61 times and Days' sales are 86.28 days, 75.07 days, and 55.22 days.
To learn more about the Inventory turnover ratio, refer to the link:
https://brainly.com/question/9459259
