Cromwell Company began the year with a balance in inventory of $110,000 and ended the year with a balance of $102,000.The net sales for the year were $983,000 with a gross profit on sales of $295,000.The inventory turnover ratio is closest to:
A)2.78
B)9.27
C)6.49
D)2.89

Question

Quizplus · Accepted Answer

Inventory turnover ratio measures how efficiently a company is managing its inventory by calculating the number of times the inventory is sold and replaced during a period. It is calculated by dividing the cost of goods sold by the average inventory.

Average inventory = (Beginning inventory + Ending inventory)/2
= ($110,000 + $102,000)/2
= $106,000

Cost of goods sold = Net sales - Gross profit
= $983,000 - $295,000
= $688,000

Inventory turnover ratio = Cost of goods sold/Average inventory
= $688,000/$106,000
= 6.49

Therefore, the closest answer is choice C.

Cromwell Company Began the Year with a Balance in Inventory