Question

Based on the following data, what is the inventory turnover?

Sales on account during year $400,000
Cost of goods sold during year 255,000
Accounts receivable, beginning of year 45,000
Accounts receivable, end of year 35,000
Inventory, beginning of year 90,000
Inventory, end of year 80,000
a. 2.8
b. 3.0
c. 10.0
d. 1.6

Answer 1

The inventory turnover is calculated by dividing the Cost of Goods Sold by the average inventory. The average inventory is the sum of the beginning and ending inventory divided by two. The inventory turnover for the given data is 3.0.

Step-by-step explanation:

To calculate the inventory turnover, you need to use the Cost of Goods Sold (COGS) and the average inventory for the period. The formula for inventory turnover is:

Inventory Turnover = Cost of Goods Sold / Average Inventory

To find the average inventory, you add the inventory at the beginning of the year to the inventory at the end of the year and divide by two.

Average Inventory = (Inventory beginning of year + Inventory end of year) / 2
Average Inventory = (90,000 + 80,000) / 2
Average Inventory = 170,000 / 2
Average Inventory = 85,000

COGS is already provided as $255,000.

Now, you can calculate the inventory turnover:

Inventory Turnover = 255,000 / 85,000
Inventory Turnover = 3

The inventory turnover for the company is 3.0, which corresponds to option b.