EX 7-16 Inventory turnover
The following data were taken from recent annual reports of Apple Computer, Inc., a
manufacturer of personal computers and related products, and American Greetings Corporation,
a manufacturer and distributor of greeting cards and related products:
Apple American Greetings
Cost of goods sold $23,397,000,000 $809,956,000
Inventory, end of year 455,000,000 203,873,000
Inventory, beginning of the year 509,000,000 216,671,000
a. Determine the inventory turnover for Apple and American Greetings. Round to one
decimal place.
b. Would you expect American Greetings’ inventory turnover to be higher or lower than
Apple’s? Why?
Answer:
a. Apple: 48.5 {$23,397,000,000/[($455,000,000 + $509,000,000)/2]}
American Greetings: 3.9 {$809,956,000/[($203,873,000 + $216,671,000)/2]}
b. Lower. Although American Greetings’ business is seasonal in nature, with most of its revenue generated during the major holidays, much of its nonholiday inventory may turn over very slowly. Apple, on the other hand, turns its inventory over very fast because it maintains a low inventory, which allows it to respond quickly to customer needs. Additionally, Apple’s computer products can quickly become obsolete, so it cannot risk building large inventories.
manufacturer of personal computers and related products, and American Greetings Corporation,
a manufacturer and distributor of greeting cards and related products:
Apple American Greetings
Cost of goods sold $23,397,000,000 $809,956,000
Inventory, end of year 455,000,000 203,873,000
Inventory, beginning of the year 509,000,000 216,671,000
a. Determine the inventory turnover for Apple and American Greetings. Round to one
decimal place.
b. Would you expect American Greetings’ inventory turnover to be higher or lower than
Apple’s? Why?
Answer:
a. Apple: 48.5 {$23,397,000,000/[($455,000,000 + $509,000,000)/2]}
American Greetings: 3.9 {$809,956,000/[($203,873,000 + $216,671,000)/2]}
b. Lower. Although American Greetings’ business is seasonal in nature, with most of its revenue generated during the major holidays, much of its nonholiday inventory may turn over very slowly. Apple, on the other hand, turns its inventory over very fast because it maintains a low inventory, which allows it to respond quickly to customer needs. Additionally, Apple’s computer products can quickly become obsolete, so it cannot risk building large inventories.
