Question

Lewis Incorporated and Clark Enterprises report the following amounts for the year. Lewis Clark Inventory (beginning) $18,000 $44,000 Inventory (ending) 12,000 54,000 Purchases 174,000 181,600 Purchase returns 9,000 54,000 Required:1. Calculate cost of goods sold for each company.2. Calculate the inventory turnover ratio for each company.3. Calculate the average days in inventory for each company.
4. Explain which company appears to be managing its inventory more efficiently.

Answer 1

Answer:

Lewis Incorporated and Clark Enterprises

                                               Lewis       Clark  

1. Cost of goods sold          $171,000    $117,600

2. Inventory turnover ratio      11.4           2.4

3. Average days in inventory  32          152

4. Given the ratios and the figures, Lewis Incorporated is managing its inventory more efficiently than Clark Enterprises.

Explanation:

a) Data and Calculations:

                                      Lewis       Clark  

Inventory (beginning) $18,000    $44,000

Purchases                   174,000      181,600

Purchase returns         (9,000)     (54,000)

Inventory (ending)       (12,000)    (54,000)

Cost of goods sold   $171,000    $117,600

Inventory (beginning) $18,000   $44,000

Inventory (ending)        12,000     54,000

Total inventory          $30,000   $98,000

Average inventory     $15,000   $49,000

Inventory turnover ratio = Cost of goods sold/Average Inventory

Cost of goods sold   $171,000    $117,600

Average inventory     $15,000   $49,000

Inventory turnover

 ratio                           11.4           2.4

Average days in inventory = 365/Inventory turnover ratio

=                                 32            152