Presented below are selected data from the financial statements of Hawkins Company for 2012, 2011, and 2010.
| 2012 | 2011 | 2010 | |
| Total assets | $1,205,000 | $952,000 | $945,000 |
| Cost of goods sold | 360,000 | 420,000 | 440,000 |
| Inventory | 56,000 | 64,000 | 53,000 |
| Net income | 65,000 | 25,000 | 16,000 |
Required:
A) Calculate Hawkins’s inventory turnover ratio for 2012 and 2011. Round your answer to one decimal place.
| Turnover Ratio | |
| 2012 | times |
| 2011 | times |
B) How many days would it take to sell the entire inventory at December 31, 2012? At December 31, 2011? Assume 360 days in a year. If required, round your answers to nearest whole value.
| Number of Days | |
| 2012 | days |
| 2011 | days |
C) What problems do you see in the company’s inventory management?
(A) Turnover ratio
| Turnover Ratio | |
| 2012 | 6 times |
| 2011 | 7.2 times |
(B) days would it take to sell the entire inventory
| Number of days | |
| 2012 | 60 Days |
| 2011 | 50.1 Days |
(C) This company has a higher inventory in 2012 then required to sell and at the same time in 2012 he require more time to sell the inventory while in 2011 it requires less time to sell the inventory snd in 2011 turnover ration is higher than 2012.
Working Notes for above Calculation
(A) Turn over Ratio = Sales ÷ Avg. Inventory
2012
360000/60000 = 6 times
Avg. Inventory 56000+64000 =120000/2=60,000
2011
420000/58500 =7.2
Avg. Inventory 64000+53000 =117000/2=58500
(B) days would it take to sell the entire inventory at December 31, 2012 and 2011
(Average Inventory ÷ Cost of Goods Sold) x 360
2012
60000*360/360000 = 60 Days
2011
58500*360/420000 =50.1 Days
