A company has $72,500 of inventory at the beginning of the year and $65,500 at the end of the year.Sales revenue is $986,400,cost of goods sold is $572,700,and net income is $124,200 for the year.The inventory turnover ratio is closest to:
A) 1.8.
B) 8.3.
C) 6.0.
D) 14.3.

Question

Quizplus · Accepted Answer

Inventory turnover ratio measures how quickly a company is selling its inventory.

Inventory turnover ratio = Cost of Goods Sold / Average Inventory

We can calculate the average inventory as:

Average Inventory = (Beginning Inventory + Ending Inventory) / 2 
Average Inventory = ($72,500 + $65,500) / 2 
Average Inventory = $69,000

Using the given values:

Inventory turnover ratio = $572,700 / $69,000 
Inventory turnover ratio = 8.3

Therefore, the closest answer choice is B) 8.3.

A Company Has $72,500 of Inventory at the Beginning of the Year