What net sales are required to obtain a stockturn rate of 5--given an average inventory at cost of $100,000 and a gross margin of 50 percent?
A) $100,000
B) $1,500,000
C) $600,000
D) $1,000,000
E) $400,000

Question

Quizplus · Accepted Answer

Stockturn rate is defined as the cost of goods sold divided by the average inventory at cost. Thus, to achieve a stockturn rate of 5, the cost of goods sold must be 5 times the average inventory at cost, or $500,000 ($100,000 x 5). 
Since gross margin is 50%, the cost of goods sold is 50% of net sales. 
Thus, $500,000 is equal to 50% of net sales. 
Solving for net sales: 
Net sales = $1,000,000 (50% of net sales is $500,000)

What Net Sales Are Required to Obtain a Stockturn Rate