there are ways to measure the efficiency and effectiveness of inventory. These analyses are called, “Inventory

Turnover.” Inventory turnover is calculated by COGS/Average Inventory. Meaning if you have a beginning and ending inventory you must add both of these and divide them by 2. Also to understand this better, we can calculate the number of days in inventory sales by: COGS/365 days which will give you average daily COGS…then take this amount and put into this formula: Ending Inventory/average daily COGS…

Let do an exercise:

Refer to the following data:

Company A                            Company B

COGS                          460,000                                 275,000

Inventories:

Beginning Inventory       28,000                                   15,500

Ending Inventory           39,500                                   20,000

Class…for both companies…what is your average inventory? What is your inventory turnover? What is your number of days in inventory? What does this indicate?

 

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As you know, firms spend a lot of money in acquiring assets like computers, fixtures, etc., that must be

depreciated. So, explain why firms depreciate assets and does it really represent the true value of the assets in question.

 

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