1. Learning Objectives Understand the Business – LO1 Describe the issues in managing different types of inventory. Study the accounting methods – LO2 Explain how to report inventory and cost of goods sold. – LO3 Compute costs using three inventory costing methods. – LO4 Report inventory at the lower of cost and net realizable value. – LO5 Analyze and record inventory purchases, transportation, returns and allowances, and discounts. Evaluate the results – LO6 Evaluate inventory management by computing and interpreting the inventory turnover ratio. Review the chapter 1© McGraw-Hill Ryerson. All rights reserved.

2. Inventory Turnover Analysis Inventory turnover is the process of buying and selling inventory. © McGraw-Hill Ryerson. All rights reserved.2 The Inventory Turnover Ratio calculates the number of times inventory turns over during one year. Days to sell measures the average number of days from the time inventory is bought until it is sold. LO6

3. © McGraw-Hill Ryerson. All rights reserved.3 Inventory Turnover Ratio Cost of Goods Sold Average Inventory 365 Inventory Turnover Ratio Days to Sell The number of times inventory turns over during the period A higher ratio means faster turnover Average number of days from purchase to sale A higher number means a longer time to sell LO6 Comparison to Benchmarks