Step 1: Understanding the Problem

The inventory turnover ratio is calculated using the formula:

$\text{Inventory Turnover Ratio} = \frac{\text{Cost of Goods Sold (COGS)}}{\text{Average Inventory}}$

Where:

• COGS = Beginning Inventory + Purchases - Ending Inventory
• Average Inventory = $\frac{\text{Beginning Inventory} + \text{Ending Inventory}}{2}$

We need to compute the inventory turnover ratio for both 2022 and 2021 using the provided data and analyze the results.

Step 2: Calculating for 2022

1. COGS for 2022

$\text{COGS} = 231,313 + 510,711 - 366,106 = 375,918$

2. Average Inventory for 2022

$\text{Average Inventory} = \frac{231,313 + 366,106}{2} = 298,709.5$

3. Inventory Turnover Ratio for 2022

$\text{Inventory Turnover Ratio} = \frac{375,918}{298,709.5} \approx 1.26$

Step 3: Calculating for 2021

1. COGS for 2021

$\text{COGS} = 202,794 + 566,145 - 231,313 = 537,626$

2. Average Inventory for 2021

$\text{Average Inventory} = \frac{202,794 + 231,313}{2} = 217,053.5$

3. Inventory Turnover Ratio for 2021

$\text{Inventory Turnover Ratio} = \frac{537,626}{217,053.5} \approx 2.48$

Step 4: Analysis of Results

• The inventory turnover ratio has decreased from 2.48 in 2021 to 1.26 in 2022.
• This suggests that inventory management in 2022 was less efficient compared to 2021. The lower turnover ratio indicates that inventory stayed longer in storage, which could imply slower sales or overstocking.

Do you want a detailed breakdown or clarification of any of the steps?

Related Questions

1. What are the implications of a low inventory turnover ratio for a business's profitability?
2. How does a company's inventory turnover ratio compare to industry averages?
3. What strategies could Metronix Corporation adopt to improve inventory turnover?
4. How does a change in COGS impact the inventory turnover ratio?
5. What other financial ratios would be useful for evaluating inventory management?

Tip

Always compare inventory turnover ratios to industry standards to assess relative performance.