The following data (in thousands) were taken from recent annual reports of Apple Inc., a manufacturer of personal computers

The following data (in thousands) were taken from recent annual reports of Apple 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 $39,541,000 $682,368
Inventory, end of year 1,051,000 179,730
Inventory, beginning of the year 455,000 163,956


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: 52.5 {$39,541,000 ÷ [($1,051,000 + $455,000) ÷ 2]}
American Greetings: 4.0 {$682,368 ÷ [($179,730 + $163,956) ÷ 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.