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Matsworth is a manufacturer of fine rugs and wall hangings. Its products are sold by retailers in large department stores. In addition, the products are displayed and sold in consignment through independently owned and operated galley stores. During year 2 audit of Matsworth, the auditor used specific ratos to measure multiyear company performance. The values calculated for two ratios were considered to represent significant changes and are presented in the table below. TUrnover ratios are based on average balances.
Double click in the shaded cells associated with each ratio, and select from the lists provided the two best explanations for the year 2 changes.
Days sales in inventory
Year 1: 70
Year 2: 82
explanation: the company has experienced rising costs of raw materials since December year 1
Why is that a correct answer? Since days sales in inveotry is 365 x avg inventory / cogs, and since year 2 days sales ratio is higher than year 1, shouldn’t that be due to a DECREASE in cogs, not increase?
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