Accounting Inventory Turnover Ratio

Question

Your company sells $469,300 of goods during the year that have a cost of $398,600. Inventory was $29,783 at the beginning of the year and $34,038 at the end of the year.

 

What is the inventory turnover ratio (rounded to one decimal place)?
12.5 times
2.2 times
13.4 times
14.7 times

Answer 1

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Answer 2

this ratio describes the cost of goods sold (total sales includes profit) divided by the average inventory. Therefore, you will want to divide 398,600 by the average of the starting and ending inventory. To find the average, add 29,783 and 34,038, and divide by 2. (You divide by 2 because you are averaging 2 numbers.) So:

29,783 + 34038 = 63,821

 

63,821/2 =31,910.5

 

Now that we know the average, we can compute the turnover ratio:

 

398600/31910.5 = 12.49118629

 

rounding to one decimal yields 12.5