Final answer:
To calculate the inventory turnover at cost for Allison Company, determine the cost of goods sold (COGS) using the markup rate and sales data.
Step-by-step explanation:
Calculating Inventory Turnover at Cost Based on Selling Price
To calculate the inventory turnover at cost using the selling price data provided for Allison Company, we first need to determine the cost of goods sold (COGS). The formula for COGS is the beginning inventory plus purchases (which we will need to find out) minus the ending inventory.
Since the markup rate based on selling price is 40%, it means that the cost represents 60% of the selling price (100% - 40% = 60%). We can use the sales figure to find the total cost of goods that were sold during the year. The sales amount was $380,000, so the total cost of the items sold is 60% of that, or $380,000 * 0.60 = $228,000.
Now, we know:
- Beginning inventory is $90,000.
- Ending inventory is $120,000.
- Total cost of goods sold is $228,000.
However, we are missing the purchases amount, but we can calculate it using the formula:
COGS = Beginning Inventory + Purchases - Ending Inventory.
By rearranging this formula, we get Purchases = COGS - Beginning Inventory + Ending Inventory. Plugging in the values, we find Purchases = $228,000 - $90,000 + $120,000 = $258,000.
Next, to find the inventory turnover at cost, we use the formula:
Inventory Turnover = COGS / Average Inventory.
The average inventory is the sum of the beginning and ending inventory divided by 2, which is ($90,000 + $120,000) / 2 = $105,000.
Using COGS of $228,000 and an average inventory of $105,000, the inventory turnover at cost is $228,000 / $105,000, which equals approximately 2.17.
The inventory turnover rate to the nearest hundredth for Allison Company, based on the selling price, is therefore 2.17 times.