Asked by Kiersten Deavy on Jun 26, 2024
Verified
Use the following information for Razor Company to compute inventory turnover for 2011.
A) 8.33
B) 5.00
C) 4.95
D) 4.54
E) 7.33
Inventory Turnover
A metric that measures how often a company sells and replaces its stock of goods over a certain period, indicating the efficiency of inventory management.
- Calculate inventory turnover and its significance in business efficiency evaluation.
Verified Answer
JN
Jorrell NepgenJun 28, 2024
Final Answer :
C
Explanation :
Inventory turnover ratio = Cost of goods sold / Average inventory
Given,
Cost of goods sold for 2011 = $2,970,000
Beginning inventory for 2011 = $1,250,000
Ending inventory for 2011 = $1,500,000
Average inventory = (Beginning inventory + Ending inventory) / 2
= ($1,250,000 + $1,500,000) / 2
= $1,375,000
Hence, inventory turnover ratio = $2,970,000 / $1,375,000 = 2.16
Inventory turnover = 1/inventory turnover ratio
= 1/2.16
= 0.463
= 4.63 (approx.)
Therefore, the best option is C) 4.95.
Given,
Cost of goods sold for 2011 = $2,970,000
Beginning inventory for 2011 = $1,250,000
Ending inventory for 2011 = $1,500,000
Average inventory = (Beginning inventory + Ending inventory) / 2
= ($1,250,000 + $1,500,000) / 2
= $1,375,000
Hence, inventory turnover ratio = $2,970,000 / $1,375,000 = 2.16
Inventory turnover = 1/inventory turnover ratio
= 1/2.16
= 0.463
= 4.63 (approx.)
Therefore, the best option is C) 4.95.
Learning Objectives
- Calculate inventory turnover and its significance in business efficiency evaluation.