Use the information below to answer the following questions:
Saw Ltd’s inventory at 1 July 2011 was $16 300, and at 30 June 2009 it was $23 700. Sales for the year ended 30 June 2012 were $125 000 and the gross margin was 20%.
-What was the inventory turnover?
A) 5.25 times p.a.
B) 5 times p.a.
C) it cannot be calculated from the information provided
D) 1.25 times p.a.

Question

Use the information below to answer the following questions:
Saw Ltd’s inventory at 1 July 2011 was $16 300, and at 30 June 2009 it was $23 700. Sales for the year ended 30 June 2012 were $125 000 and the gross margin was 20%. 
-What was the inventory turnover?
A) 5.25 times p.a.
B) 5 times p.a.
C) it cannot be calculated from the information provided
D) 1.25 times p.a.

Quizplus · Accepted Answer

Inventory turnover is calculated as cost of goods sold divided by average inventory. We are given the gross margin, which is 20%, so the cost of goods sold can be calculated as 80% of sales or $100,000. The average inventory is the average of the inventory at the beginning and end of the year, so it is ($16,300 + $23,700)/2 = $20,000. Therefore, the inventory turnover is $100,000/$20,000 = 5 times per year.

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