Compute inventory turnover and days' sales in inventory using the provided financial data.

Understand the Problem

The question is asking to compute the inventory turnover and days' sales in inventory using specific financial data provided for SCC Company. It requires understanding the formulas and calculations involved in determining these two metrics.

Answer

Inventory Turnover: $8$, Days Sales in Inventory: $46$ days.

Steps to Solve

Calculate Average Inventory

To find the average inventory, use the formula:

$$ \text{Average Inventory} = \frac{\text{Beginning Inventory} + \text{Ending Inventory}}{2} $$

Given data:
Beginning Inventory = $2,200
Ending Inventory = $8,200

$$ \text{Average Inventory} = \frac{2,200 + 8,200}{2} = \frac{10,400}{2} = 5,200 $$

Calculate Inventory Turnover

Next, use the formula for inventory turnover:

$$ \text{Inventory Turnover} = \frac{\text{Cost of Goods Sold}}{\text{Average Inventory}} $$

Given data:
Cost of Goods Sold = $41,600
Average Inventory = $5,200

$$ \text{Inventory Turnover} = \frac{41,600}{5,200} = 8 $$

Calculate Days Sales in Inventory

Then, calculate the days' sales in inventory using the formula:

$$ \text{Days Sales in Inventory} = \frac{365}{\text{Inventory Turnover}} $$

From the previous step, Inventory Turnover = $8$.

$$ \text{Days Sales in Inventory} = \frac{365}{8} \approx 45.625 $$

Final Values

So, the values needed are:

Inventory Turnover = 8 times
Days Sales in Inventory ≈ 46 days (round up for practical purposes)

Inventory Turnover: 8 times
Days Sales in Inventory: 46 days

More Information

Inventory turnover indicates how many times a company's inventory is sold and replaced over a period, while days sales in inventory shows the average number of days items remain in inventory before sale. These metrics help gauge inventory management efficiency.

Tips

Forgetting to average the inventory before calculating turnover can lead to incorrect results.
Misinterpreting "cost of goods sold" as "net sales" when computing inventory turnover.

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