Richardson Auto Supplies reported the following income statement for the year ended December 31,2017
Richardson Auto Supplies
Income Statement
Year Ended December 31, 2017
Sales Revenue $ 426,500
Cost of Goods Sold
Beginning Merchandise Inventory $ 36,000
Net Cost of Purchases 273,800
Cost of Goods Available for Sale 309,800
Less: Ending Merchandise Inventory 41,100
Cost of Goods Sold: 268,400
Gross Profit 158,100
Operating Expenses 122,600
Net Income $ 35,500
Compute inventory turnover rate for the year. (Round to two decimal places.)
Compute days' sales in inventory for the year. (Round to two decimal places.)
What will be an ideal response
Inventory turnover is 6.94 times for the year.
Calculations:
Average merchandise inventory = (Beginning merchandise inventory + Ending merchandise inventory) / 2
= ($36,000 + $41,400 ) / 2 = $38,700
Inventory turnover = Cost of goods sold / Average merchandise inventory
= $268,400 / $38,700
= 6.94 times for the year
Days' sales in inventory is 52.59 days for the year.
Calculations:
Days' sales in inventory = 365 days / Inventory turnover
= 365 / 6.94 times
= 52.59 days
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