FALL 2012
Section (lecture): B
Group Project Part 2 (of 2)
Dorel Inc.
Presented to:
Prof. George Kanaan
Date: November 22nd 2012
John Molson School of Business – Concordia University
$ = thousands of U.S. dollars
Chapter 8
8.1
Cost of Sales Equation = Beginning Inventory + Purchases - Ending Inventory
1 846 470 000 = 510 068 000 + 177 811 000 - 442 409 000
Purchases for the year 2011 total $65 812 530.
8.2
Dorel calculates costs of inventory with the use of a First in, First Out (FIFO) system. The reason for choosing the FIFO inventory cost system could be due to the fact that managers at Dorel like to report higher earnings for their company. In the case for FIFO, since it results in higher profit, due to a lower cost of sales, it is preferable.
8.3
a) The inventory turnover ratio reflects how many times average inventory was produced and sold during the period. Furthermore, average days measures the average amount of time takes for the company to sell and deliver inventory to customers.
b)
1) Inventory Turnover = Cost of Sales / Average Total Inventory
2) Average # of Days to Sell Inventory = Average Inventory/ (Cost of Sales /365 days)
2011
1) 1 846 470 000/ [(510 068 000 + 442 409 000)/2] = 3.88
2) [(510 068 000 + 442 409 000)/2]/ ( 1 846 470 000/ 365 days) = 94.1 days
2010
1) 1 778 938 000/ [(399 866 000 +510 068 000)/2] = 3.91 2) [(399 866 000 +510 068 000)/2] / (1 778 938 000/ 365 days) = 93.4 days
2009
1) 1 634 570 000/ [(509 467 000 + 399 866 000)/2] = 3.60 2) [(509 467 000 + 399 866 000)/2]/ (1 634 570 000/ 365 days) = 101.4 days
c) In terms of the average number of days to sell inventory, the company has taken less time to produce and sell inventory from 2009 to 2010. However, from 2010 to 2011, the company has increased the amount of days it needs to produce and sell inventory by 0.7 days.
In terms of the average inventory turnover, the company has been