CP7-3 Calculating and Interpreting the Inventory Turnover Ratio and Days to Sell
ID: 2515521 • Letter: C
Question
CP7-3 Calculating and Interpreting the Inventory Turnover Ratio and Days to Sell [LO 7-5] GameWorld Corp. is the world's largest multichannel video game retailer. The company reported the following amounts in its financial statements (in millions) 2013 2012 $10,900 $10,400 Net Sales Revenue Cost of Goods Sold Beginning Inventory Ending Inventory 7,040 6,640 2,000 1,300 2,400 2,000 Required 1. Determine the inventory turnover ratio and average days to sell inventory for 2013 and 2012. (Use 365 days in a year. Round your intermediate and final answers to 1 decimal place.) TIP: Remember to use costs in both the numerator (CGS) and denominator (average inventory) 2013 2012 times per year days Inventory Turnover Ratio times per year Days to Sell days 2. Is GameWorld performing better than its competitor Ultimate Value where inventory turned over 3.5 times during 2013 (65 days to sell) Yes 0Explanation / Answer
Requirement 1 Inventory Turnover Ratio = Cost of Goods Sold /Average Inventory Days to Sell = 365 days / Inventory Turnover ratio 2013 2012 Average Inventory 2200 1650 (2000+2400)/2 (1300+2000)/2 Inventory Turnover Ratio 3.20 times per Year 4.0 times per Year (7040/2200) (6640/1650) Days to sell 114 Days 91 Days Requirement 2 Answer is No Inventory turnover ratio vary significantly among industries. A high ratio indicates fast moving inventories and a low ratio, on the other hand, indicates slow moving or obsolete inventories in stock. A low ratio may also be the result of maintaining excessive inventories needlessly.