Asked by Aleczander Bagensie on Jun 19, 2024
Verified
Last year Truro Corporation purchased $800,000 of inventory.The cost of goods sold was $750,000 and the ending inventory was $125,000.The inventory turnover for the year was:
A) 6.0
B) 7.5
C) 6.4
D) 8.0
Inventory Turnover
A ratio showing how many times a company's inventory is sold and replaced over a period.
Cost of Goods Sold
A financial metric that represents the direct costs attributable to the production of the goods sold by a company.
Ending Inventory
The total value of all goods available for sale at the end of an accounting period.
- Determine inventory turnover.
Verified Answer
CR
Cindy ReyesJun 24, 2024
Final Answer :
B
Explanation :
Ending inventory balance = Beginning inventory balance + Purchases - Cost of goods sold
$125,000 = Beginning inventory balance + $800,000 - $750,000
Beginning inventory balance = $125,000 - $800,000 + $750,000 = $75,000
Average inventory balance = (Beginning inventory balance + Ending inventory balance)/2
= ($75,000 + $125,000)/2 = $100,000
Inventory turnover = Cost of goods sold ÷ Average inventory balance
= $750,000 ÷ $100,000 = 7.5
$125,000 = Beginning inventory balance + $800,000 - $750,000
Beginning inventory balance = $125,000 - $800,000 + $750,000 = $75,000
Average inventory balance = (Beginning inventory balance + Ending inventory balance)/2
= ($75,000 + $125,000)/2 = $100,000
Inventory turnover = Cost of goods sold ÷ Average inventory balance
= $750,000 ÷ $100,000 = 7.5
Learning Objectives
- Determine inventory turnover.