Question

The following information came from the income statement of the Wilkens Company at December 31, 2017: sales revenue $1,800,000; beginning inventory $160,000; ending inventory $240,000; and gross profit $600,000. What is Wilkens' inventory turnover ratio for 2017?

a- 3.0 times
b- 2.5 times
c- 3.75 times
d- 6.0 times

Answer 1

d. 6.0 times

Step-by-step explanation:

The calculation of inventory turnover ratio is shown below:-

Inventory turnover ratio = Cost of goods sold ÷ Average inventory

= Cost of goods sold = Sales revenue - Gross profit

= $1,800,000 - $600,000

= $1,200,000

Average inventory = (Beginning inventory + Ending inventory) ÷ 2

= ($160,000 + $240,000) ÷ 2

= $400,000 ÷ 2

= $200,000

Inventory turnover ratio = Inventory turnover ratio ÷ Average inventory

= $1,200,000 ÷ $200,000

= 6.0 times