QT, Inc. and Elppa Computers, Inc. compete with each other in the personal computer market. QT assembles computers to customer orders, building and delivering a computer within four days of a customer entering an order online. Elppa, on the other hand, builds computers for inventory prior to receiving an order. These computers are sold from inventory once an order is received. Selected financial information for both companies from recent financial statements follows (in millions):
QT Elppa
Sales $56,940 $120,357
Cost of goods sold 44,754 92,385
Inventory, beginning of period 1,382 6,317
Inventory, end of period 1,404 7,490
a. Determine for both companies (1) the inventory turnover and (2) the number of days' sales in inventory. Round your calculations and answers to one decimal place. Assume 365 days a year.
QT Elppa
1. Inventory turnover
2. Number of days' sales in inventory days days
b. QT has a much higher inventory turnover ratio than does Elppa. Likewise, QT has a much smaller number of days' sales in inventory. These significant differences are a result of QT's make-to-order strategy.