Question

a company that specializes in planning parties for children had $7,000 worth of inventory on january 1, 2018, and it had $5,000 worth of inventory on december 31, 2018. if its cost of goods sold for that period was $3,000, and its net profit was $9,000, what was its inventory to turnover ratio? group of answer choices 1 time 1.5 times 2 times 3 times 9 times rationale: by dividing cost of goods sold by the average inventory to measure the speed with which inventory moves through the firm and is turned into sales, the inventory turnover ratio is calculated.

Answer 1

The inventory turnover ratio for the company is calculated as 0.5 times, which indicates the average inventory has been turned over or sold and replaced half a time during the year.

Step-by-step explanation:

The inventory turnover ratio is calculated by dividing the cost of goods sold by the average inventory. To calculate the average inventory, you add the value of the inventory at the beginning of the period to the value at the end of the period and divide by two. Therefore, the average inventory for the given period is (7000 + 5000) / 2 = $6,000. The cost of goods sold was $3,000. The inventory turnover ratio then is $3,000 / $6,000 = 0.5 times.