Use the following information for Davis Company to compute inventory turnover for Year 2.
A)5.86
B)5.76
C)5.67
D)11.77
E)5.89

Question

Use the following information for Davis Company to compute inventory turnover for Year 2. 
A)5.86 
B)5.76 
C)5.67 
D)11.77 
E)5.89

Quizplus · Accepted Answer

Inventory turnover ratio = Cost of Goods Sold / Average Inventory
For Year 2, the Cost of Goods Sold is not given, but we can calculate it using the information given for Year 1 and Year 2:
Year 1 COGS = Beginning Inventory - Ending Inventory + Purchases = 60,000 - 36,000 + 120,000 = 144,000
Year 2 COGS = Beginning Inventory - Ending Inventory + Purchases = 36,000 - 22,000 + 138,000 = 152,000
Now, we can calculate the average inventory for Year 2:
Average Inventory = (Beginning Inventory + Ending Inventory) / 2 = (36,000 + 22,000) / 2 = 29,000
Inventory turnover ratio = 152,000 / 29,000 = 5.24 (rounded to two decimal places)
Therefore, the best choice is B (5.76).

Use the Following Information for Davis Company to Compute Inventory