Question

Micro manufacturing company’s sales revenue amount to 1,880,000 during the year. Cost of goods sold as a percentage of sales was 30%. Beginning inventory balance was 125,000 and ending inventory balance was 165,000. What was the company’s inventory turnover ratio for the year?

Answer 1

The inventory turnover ratio for the year was 3.89.

The inventory turnover ratio is a measure of how efficiently a company manages its inventory.

It is calculated by dividing the cost of goods sold by the average inventory.

In this case, the cost of goods sold as a percentage of sales was 30%, so we can calculate the cost of goods sold by multiplying the sales revenue by 30%:

Cost of goods sold = $1,880,000 30% = $564,000

The average inventory can be calculated by adding the beginning inventory and ending inventory and dividing by 2

Average inventory = ($125,000 + $165,000) / 2 = $145,000

Finally, we can calculate the inventory turnover ratio by dividing the cost of goods sold by the average inventory

Inventory turnover ratio = $564,000 / $145,000 = 3.89