Use the following information for Shafer Company to compute inventory turnover for year 2.
$$\begin{array} { | l | r | r | }
\hline & \text { Year 2 } & \text { Year 1 } \
\hline \text { Net sales } & \$ 647,500 & \$ 582,000 \
\hline \text { Cost of goods sold } & 389,500 & 360,840 \
\hline \text { Ending inventory } & 76,700 & 79,380 \
\hline
\end{array}$$
A) 9.98
B) 5.08
C) 4.99
D) 8.30
E) 8.44

Question

Use the following information for Shafer Company to compute inventory turnover for year 2.
$$\begin{array} { | l | r | r | } 
\hline & \text { Year 2 } & \text { Year 1 } \
\hline \text { Net sales } & \$ 647,500 & \$ 582,000 \
\hline \text { Cost of goods sold } & 389,500 & 360,840 \
\hline \text { Ending inventory } & 76,700 & 79,380 \
\hline
\end{array}$$
A) 9.98
B) 5.08
C) 4.99
D) 8.30
E) 8.44

Quizplus · Accepted Answer

Inventory turnover is calculated as Cost of Goods Sold divided by Average Inventory. For Year 2, Cost of Goods Sold is $389,500. Average Inventory is calculated as (Beginning Inventory + Ending Inventory) / 2. Beginning Inventory for Year 2 is the Ending Inventory for Year 1, which is $79,380. Thus, Average Inventory for Year 2 is ($79,380 + $76,700) / 2 = $78,040. Inventory turnover for Year 2 is $389,500 / $78,040 = 4.99.

Use the Following Information for Shafer Company to Compute Inventory