COMM 217 Study Guide - Final Guide: Inventory Turnover, Perpetual Inventory, Cash Flow
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8. 1 estimate the amount of inventories that your company purchased and produced during the current year. (2011 p. 33) I believe this company uses the perpetual inventory system. The advantage of using a perpetual inventory system is that it allows for more timely information with regard to quantities and costs of inventory, increasing information"s relevance to important decision makers. The inventory turnover ratio measures how many times the average inventory was produced and sold during a time period. The average days to sell inventory is the days in year divided by the inventory turnover ratio. It measures in how many days the inventory is sold. Average days to sell inventory= days in year/inventory turnover: if your company reports inventories, compute these ratios for the last three years. If the company does not report the cost of sales (cos) separately, assume that cos equal 70 percent of the sales amount.
