Question

Use the following information:

Net sales $190,000
Cost of goods sold 132,000
Beginning inventory 43,000
Ending inventory 33,000
Calculate the inventory turnover ratio

Answer 1

The inventory turnover ratio, calculated using the formula Cost of Goods Sold / Average Inventory, indicates how frequently a company's inventory is sold and restocked. With the given information: Cost of Goods Sold of $132,000, Beginning Inventory of $43,000, and Ending Inventory of $33,000, the Inventory Turnover Ratio is approximately 3.47.

Step-by-step explanation:

Calculating Inventory Turnover Ratio

The inventory turnover ratio is a measure of how quickly a company sells and replaces its stock of goods within a period. To calculate the inventory turnover ratio, we use the formula:

Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory

Average Inventory is calculated by adding the Beginning Inventory to the Ending Inventory and dividing by 2.

Using the information provided:

Beginning Inventory: $43,000

Ending Inventory: $33,000

Cost of Goods Sold: $132,000

The Average Inventory would therefore be ($43,000 + $33,000) / 2 = $38,000.

Now, we can calculate the Inventory Turnover Ratio:

Inventory Turnover Ratio = $132,000 / $38,000 ≈ 3.47

The company's inventory turnover ratio is approximately 3.47, which indicates that the company sells and restocks its inventory about 3.47 times per year.