(a)
Inventory turnover ratio: Inventory turnover ratio is used to determine the number of times inventory used or sold during the particular accounting period. The formula to calculate the inventory turnover ratio is as follows:
To determine: the inventory turnover for Company T and Company A
(a)
Answer to Problem 6.1MAD
Explanation of Solution
The inventory turnover ratio for Company T is calculated as follows:
Working notes:
The average inventory is calculated as follows:
The inventory turnover ratio for Company A is calculated as follows:
Working notes:
The average inventory is calculated as follows:
The inventory turnover ratio is calculated by dividing cost of goods sold by average inventory during the period. The average inventory is calculating by dividing beginning inventory and ending inventory by 2. The inventory turnover ratio is an important measure as to how efficient is the management is good at managing inventory and achieving sales from it.
Therefore, the inventory turnover of Company T is 6.2 Times & the inventory turnover of Company A is 7.7 Times.
(b)
Days’ sales in inventory: Days’ sales in inventory are used to determine number of days a particular company takes to make sales of the inventory available with them. The formula to calculate the days’ sales in inventory ratio is as follows:
To determine: the Days’ sales in inventory ratio Company T and Company A.
(b)
Answer to Problem 6.1MAD
Explanation of Solution
The Days’ sale in inventory ratio for Company T is calculated as follows:
The Days’ sale in inventory ratio for Company A is calculated as follows:
The Days’ sales in inventory ratio are calculated by dividing days in accounting period by inventory turnover ratio. The Days’ sale in inventory ratio is an important measure to know how long the company is holding the inventory before selling when compared to its peers.
Therefore, the Days’ sales in inventory of Company T are 58.8 days, & the Days’ sales in inventory of Company A is 47.4 days.
(c)
Inventory turnover ratio: Inventory turnover ratio is used to determine the number of times inventory used or sold during the particular accounting period. The formula to calculate the inventory turnover ratio is as follows:
To state: the company that has better inventory efficiency.
(c)
Answer to Problem 6.1MAD
Explanation of Solution
The company A has higher inventory turnover ratio of 7.7 and lesser number of days’ sales in inventory of 47.4 days when compared to company T’s inventory turnover ratio of 6.2 and number of days’ sales in inventory of 58.8 days.
(d)
Inventory turnover ratio: Inventory turnover ratio is used to determine the number of times inventory used or sold during the particular accounting period. The formula to calculate the inventory turnover ratio is as follows:
Days’ sales in inventory: Days’ sales in inventory are used to determine number of days a particular company takes to make sales of the inventory available with them. The formula to calculate the days’ sales in inventory ratio is as follows:
To explain: the difference in inventory efficiency between two companies.
(d)
Explanation of Solution
The main difference in the inventory efficiency between both the companies is that merchandising strategy followed. The Company A uses internet as medium for selling goods and direct shipping of merchandise inventory is not handled as company A’s inventory, whereas company T uses traditional retail store method which makes them to stock more level of inventory in retail outlet. The company T’s strategy requires a significant investment in inventory as it can be seen in its inventory turnover and number of days’ sales in inventory
Want to see more full solutions like this?
Chapter 6 Solutions
CORPORATE FINANCIAL ACCOUNTING 15TH ED
- Higado Confectionery Corporation has a number of store locations throughout North America. In income statements segmented by store, which of the following would be considered a common fixed cost with respect to the stores? Multiple Choice cost of goods sold at each store store manager salaries store building depreciation expense the cost of corporate advertising aired during the Super Bowlarrow_forwardThe Camera Shop sells two popular models of digital SLR cameras (Camera A Price: 230, Camera B Price: 310). The sales of these products are not independent of each other, but rather if the price of one increase, the sales of the other will increase. In economics, these two camera models are called substitutable products. The store wishes to establish a pricing policy to maximize revenue from these products. A study of price and sales data shows the following relationships between the quantity sold (N) and prices (P) of each model: NA = 192 - 0.5PA + 0.25PB NB = 305 + 0.08PA - 0.6PB Construct a model for the total revenue and implement it on a spreadsheet. Develop a two-way data table to estimate the optimal prices for each product in order to maximize the total revenue. Vary each price from $250 to $500 in increments of $10. Max profit occurs at Camera A price of $ . Max profit occurs at Camera B price of $ .arrow_forwardCost Structure of Retailers; The Internet; Operating Leverage Today’s retailers are findingthat online sales and service are a necessary ingredient of their overall marketing and selling strategybecause of increased competition. In certain retail sectors, consumers are moving to the Internet inlarge numbers for convenience and selection. Unfortunately, the investment in resources, both equipment and labor, can be huge. Some studies show that less than a third of online retailers are profitableon internet sales. As a result, some new consulting firms, software firms, and service providers havebegun to provide e-commerce solutions for retailers.Required1. How does a consulting firm, service provider, or software firm help a retailer reduce costs and becomemore competitive for internet sales? What is the role of operating leverage in the retailer’s decision tooutsource online sales and service?2. Cost structure is not the only thing management should be concerned about when moving in to…arrow_forward
- World View Outfitters operates a large outdoor clothing and equipment store with three main product lines: clothing, equipment, and shoes. World View Outfitters operates at capacity and allocates selling, general, and administration (S, G & A) costs to each product line using the cost of merchandise of each product line. The company wants to optimize the pricing and cost management of each product line and is wondering if its accounting system is providing it with the best information for making such decisions. Store manager Abe Barry gathers the following information regarding the three product lines: For2017,World View Outfitters budgets the following selling, general, and administration costs: 1. Suppose World View Outfitters uses cost of merchandise to allocate all S, G & A costs. Prepare budgeted product-line and total company income statements. 2. Identify an improved method for allocating costs to the three product lines. Explain. Use the…arrow_forwardJims Camera shop sells two high-end cameras, the Sky Eagle and Horizon. The demand for these two cameras are as follows: Ds = demand for the Sky Eagle, Ps is the selling price of the Sky Eagle, DH is the demand for the Horizon, and PH is the selling price of the Horizon. DS=2220.60Ps+0.35PHDH270+0.10Ps0.64PH The store wishes to determine the selling price that maximizes revenue for these two products. Develop the revenue function for these two models, and find the prices that maximize revenue.arrow_forwardDetermining transfer pricing The Hernandez Company is decentralized, and divisions are considered investment centers. Hernandez has one division that manufactures oak dining room chairs with upholstered seat cushions. The Chair Division cuts, assembles, and finishes the oak chairs and then purchases and attaches the seat cushions. The Chair Division currently purchases the cushions for $32 from an outside vendor. The Cushion Division manufactures upholstered seat cushions that are sold to customers outside the company. The Chair Division currently sells 1,800 chairs per quarter, and the Cushion Division is operating at capacity, which is 1,800 cushions per quarter. The two divisions report the following information: Requirements Determine the total contribution margin for Hernandez Company for the quarter. Assume the Chair Division purchases the 1,800 cushions needed from the Cushion Division at its current sales price. What is the total contribution margin for each division and the…arrow_forward
- EOQ for a retailer. The Cloth Center sells fabrics to a wide range of industrial and consumer users. One of the products it carries is denim cloth, used in the manufacture of jeans and carrying bags. The supplier for the denim cloth pays all incoming freight. No incoming inspection of the denim is necessary because the supplier has a track record of delivering high-quality merchandise. The purchasing officer of the Cloth Center has collected the following information: Annual demand for denim cloth 20,000 yards Ordering cost per purchase order P160 Carrying cost per year 20% of purchase costs Safety-stock requirements None Cost of denim cloth P8 per year The purchasing lead time is 2 weeks. The Cloth Center is open 250 days a year (50 weeks for 5 days a week).1. Calculate the EOQ for denim cloth.2. Calculate the number of orders that will be placed each year3. Calculate the reorder point for denimcloth.arrow_forwardBenetton supply chain: One of the best known examples of how an organization can use its supply chain to achieve a competitive advantage is the Benetton Group. Founded by the Benetton family in the 1960s, the company is now one of the largest garment retailers, with stores which bear its name located in almost all parts of the world. Part of the reason for its success has been the way it has organized both the supply side and the demand side of its supply chain. Although Benetton does manufacture much of its production itself, on its supply side the company relies heavily on ‘contractors’. Contractors are companies (many of which are owned, or part-owned, by Benetton employees) that provide services to the Benetton factories by knitting and assembling Benetton’s garments. These contractors, in turn, use the services of sub-contractors to perform some of the manufacturing tasks. Benetton’s manufacturing operations gain two advantages from this. First, its production costs for woollen…arrow_forwardEOQ for a retailer. The Fabric World sells fabrics to a wide range of industrial and consumer users. One of the products it carries is denim cloth, used in the manufacture of jeans and carrying bags. The supplier for the denim cloth pays all incoming freight. No incoming inspection of the denim is necessary because the supplier has a track record of delivering high-quality merchandise. The purchasing officer of the Fabric World has collected the following information:arrow_forward
- CVP Analysis; Strategy Bubba’s Western Wear is a western hat retailer in Lubbock, Texas.Although Bubba’s carries numerous styles of western hats, each hat has approximately the same priceand purchase cost, as shown in the following table. Sales personnel receive a commission to encourage them to be more aggressive in their sales efforts. Currently, the Lubbock economy is really humming, and sales growth at Bubba’s has been great. The business is very competitive, however, andBubba, the owner, has relied on his knowledgeable and courteous staff to attract and retain customerswho otherwise might go to other western wear stores. Because of the rapid growth in sales, Bubbais also finding the management of certain aspects of the business more difficult, such as restockinginventory and hiring and training new salespeople.Sales price $ 80.00Per unit variable expensesPurchase cost 43.50Sales commissions 11.50Total per unit variable costs $ 55.00Total annual fixed expensesAdvertising $…arrow_forwardGrant's Western Wear is a retailer of western hats located in Atlanta, Georgia. Although Grant's carries numerous styles of western hats, each hat has approximately the same price and invoice purchase cost, as shown below. Sales personnel receive large commissions to encourage them to be more aggressive in their sales efforts. Currently the economy of Atlanta is really humming, and sales growth at Grant's has been great. However, the business is very competitive, and Grant has relied on its knowledgeable and courteous staff to attract and retain customers, who otherwise might go to other western wear stores. Also, because of the rapid growth in sales, Grant is finding it more difficult to manage certain aspects of the business, such as restocking of inventory and hiring and training new salespeople. Sales price $ 44.00 Per-unit variable costs: Invoice cost 19.00 Sales commissions 5.80 Total per-unit variable costs $ 24.80 Total annual fixed…arrow_forwardGoogle Inc. is a technology company specializing in Internet-related products and services, including its famous web search engine. Whirlpool Corp. manufactures home appliances including laundry appliances, refrigerators, and dishwashers. Google has a market - to - book ratio of 3.8. Based on your knowledge of the industries in which these two companies compete, and the determinants of the M/B ratio, would you estimate that Whirlpool's market-to - book ratio is O A. less than Google's M/B ratio of 3.8 O B. approximately equal to Google's M/B ratio of 3.8 O C. greater than Google's M/B ratio of 3.8arrow_forward
- Financial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College PubFinancial AccountingAccountingISBN:9781305088436Author:Carl Warren, Jim Reeve, Jonathan DuchacPublisher:Cengage Learning
- Essentials of Business Analytics (MindTap Course ...StatisticsISBN:9781305627734Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. AndersonPublisher:Cengage Learning