Calculation And Interpretation Of Outstanding Inventory Days

Question

In the 2011 financial statements of Hocking River Vineyards reports that Inventories consist of the following:

 

2011

2010

Winemaking and packaging materials

$248,350

$296,012

Work-in-process

3,535,028

3,209,692

Finished goods

5,889,816

7,226,730

Obsolescence reserve

(54,049)

(20,416)

Total inventories

$9,619,145

$10,712,018



The company reported cost of goods sold of $7,944,635 in 2011 and $9,679,414 in 2010.

1. Compute average inventory days outstanding for both years and interpret any change. What does this ratio mean?

2. Is the year-over-year change good news? Why?


Summary

The question belongs to Finance and it is about calculating the average inventory days outstanding for two years and interpreting any changes and discusses about the year-over-year change being good news or not.

Total Word Count 56

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