The following data were extracted from the income statement of Keever Inc.: Current Year Previous Year
Sales $18,500,000 $20,000,000
Beginning inventories 940,000 860,000
Cost of goods sold 9,270,000 10,800,000
Ending inventories 1,120,000 940,000

Required:
Determine for each year (1) the inventory turnover and (2) the number of days' sales in inventory.

current year 9

previous year = 12

2. current year = 40.56

previous year = 30.42

Explanation:

Inventory turnover is an example of an activity ratio

Activity ratios calculate the efficiency of performing daily task of a firm

Inventory turnover = cost of goods sold / average inventory

Average inventory = (beginning inventory + ending inventory) / 2

the number of days' sales in inventory = number of days in a period /  inventory turnover

Current year =  (1,120,000 +  940,000) / 2 = 1,030.000

turnover = 9,270,000 / 1,030.000 = 9

365 / 9 =40.56

Previous year

Average inventory = (940,000 + 860,000) / 2 = 900,000

Inventory turnover = 10,800,000 / 900,000 = 12

365 / 12 = 30.42

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