Explain the stock turnover ratio, Managerial Accounting

Assignment Help:

Stock turnover ratio

 Meaning: this ratio establishes a relation ship between costs of goods sold and average inventory.

Objective: the objective of component of this ratio is to determine the efficiency with which the inventory is utilized.

Components: there are two components of this ratio which are as under:

Cost of goods sold

Average inventory

Computation: this ratio is computed by dividing the cost of goods sold and average inventory. This ratio is usually expressed as x number of times. In the form of a formula this ratio may be expressed as under:

Stock turnover ratio = cost of goods sold/ average inventory

Cost of goods sold = sales - gross profit

Note:

If opening stock is not known closing stock can be taken.

If there is any complexity in calculating cost of goods sold then.

 Interpretation: It shows the speed with which the inventory is converted into sales. In general a high ratio indicates efficient performance since an improvement in the ratio shows that either the same volume of sales has been maintained with a lower investment in stock or the volume of sales has increased without any increase in the amount of stocks. However too high ratio and too low ratio call for further investigation. A too high ratio may be the result of a very low inventory levels which, ay result in frequent stock outs and thus the firm may incur high stock out costs. On the other hand a too low ratio may be the result of excessive inventory level slow moving or obsolete inventory and thus the firm incurs high carrying costs. Therefore a firm should have neither a very high not a very low stock turnover ratio it should have a adequate level.

 


Related Discussions:- Explain the stock turnover ratio

Management accounting field, INTRODUCTION AND RATIONALE The purpose of...

INTRODUCTION AND RATIONALE The purpose of this assignment is to help students further develop a number of the skills and knowledge required and valued by the accountancy profe

Five stakeholder groups, Private sector companies have multiple stakeholder...

Private sector companies have multiple stakeholders who are likely to have divergent interests.( five stakeholder groups and  discuss their financial and other objectives).

Linear Programming, Definition of Linear Programming What is Linear Program...

Definition of Linear Programming What is Linear Programming

Product mix decision when capacity constraints exist, a certain company mak...

a certain company makes 3 products A,B and C and they use the same raw material zhong.details about each product is as follows.production units are 10 000 for A,8 000 for B,12 000

150 to 200 words, solutions for (POS) slow printing of sales tickets and un...

solutions for (POS) slow printing of sales tickets and unpredictable action of cash drawers. when credit approvals delayed the checkout process or when the computer was down, thus

Jit and management accounting , JIT and Management Accounting Manageme...

JIT and Management Accounting Management accountants in many organizations have been criticized because of their failure to change their managing accounting system to reflect

Calculate the eoq, Calculate the EOQ An agent supplies 1000 units per ...

Calculate the EOQ An agent supplies 1000 units per calendar month (PCM) OF A PRODUCT TO CONSUMER. The cost per unit is £175 and the amount cost of storage space is £40. Associ

Explain discretionary fixed costs and semi variable costs, Discretionary fi...

Discretionary fixed costs and Semi variable costs Discretionary fixed costs are those which are incurred as a result of management discretion. These costs have two importan

Describe the nature of standard costing, Describe the Nature of standard co...

Describe the Nature of standard costing The system of standard costs (standard costing) is a management technique of using predetermined costs (standard costs) for evaluating p

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd