Perez Corporation has the following financial data for the years 20X1 and 20X2: 20X1 20X2
Sales $8,000,000 $10,000,000
Cost of goods sold 6,000,000 9,000,000
Inventory 800,000 1,000,000

Required:
a. Compute the inventory turnover for each year using the formula Sales/Inventory.
b. Compute inventory turnover based on an alternative calculation that is used by many financial analysts, Cost of goods sold/Inventory, for each year.

Perez Corporation

a. Inventory turnover = Sales/Inventory

20X1 =  10x

20X2 = 10x

b. Inventory turnover = Cost of goods sold/Inventory

20X1 =  7.5x

20X2 = 9x

Explanation:

a) Data and Calculations:

                                    20X1              20X2

Sales                      $8,000,000  $10,000,000

Cost of goods sold 6,000,000      9,000,000

Inventory                    800,000       1,000,000

Average inventory = $900,000 ($1,800,000/2)

a. Inventory turnover = Sales/Inventory

20X1 =  10x ($8,000,000/$800,000)

20X2 = 10x ($10,000,000/$1,000,000)

b. Inventory turnover = Cost of goods sold/Inventory

20X1 =  7.5x ($6,000,000/$800,000)

20X2 = 9x ($9,000,000/$1,000,000)

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