The following data (in millions) were taken from recent annual reports of Apple Inc., a manufacturer of personal computers and related products, and Mattel Inc., a manufacturer of toys, including Barbie®, Hot Wheels®, and Disney Classics:
Apple | Mattel
Cost of merchandise sold $140,089 | $2,896
Inventory, end of year 2,349 | 588
Inventory, beginning of the year 2,111 | 562
a. Determine the inventory turnover for Apple and Mattel. Round to one decimal place.
b. Would you expect Mattel’s inventory turnover to be higher or lower than Apple’s? Why?
Answer:
a. Apple: 62.8 {$140,089 ÷ [($2,349 + $2,111) ÷ 2]}
Mattel: 5.0 {$2,896 ÷ [($588 + $562) ÷ 2]}
b. Lower. Although Mattel’s business is seasonal, 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. In addition, Apple’s computer products can become obsolete quickly, so it cannot risk building large inventories.