Question

A large catalog retailer of fashion apparel reported $100,000,000 in revenues over the last year. On average, over the same year, the company had $5,000,000 worth of inventory in their warehouses. Assume that units in inventory are valued based on cost of goods sold (COGS) and that the retailer has a 100 percent markup on all products. How many times each year does the retailer turn its inventory?

Answer 1

The retailer turns its inventory 10 times each year, by dividing the COGS, which is $50,000,000 (half of $100,000,000 in revenues due to 100% markup), by the average inventory of $5,000,000.

Step-by-step explanation:

To calculate how many times each year the retailer turns its inventory, we can use the formula for inventory turnover ratio, which is COGS divided by average inventory. Given the retailer reported $100,000,000 in revenues and a 100 percent markup on all products, we can determine that the COGS is half of the revenue, which would be $50,000,000. The average inventory is given as $5,000,000.

So the calculation would be:

1. COGS = $100,000,000 / 2 = $50,000,000
2. Inventory Turnover Ratio = COGS / Average Inventory
3. Inventory Turnover Ratio = $50,000,000 / $5,000,000
4. Inventory Turnover Ratio = 10

Therefore, the retailer turns its inventory 10 times each year.