Cromwell Company began the year with a balance in inventory of $119,000 and ende

Question

Cromwell Company began the year with a balance in inventory of $119,000 and ended the year with a balance of $111,000. The net sales for the year were $1,001,000 with a gross profit on sales of $304,000. The inventory turnover ratio is closest to:

A. 6.06

B. 2.74

C. 8.70

D. 2.55

Cromwell Company began the year with a balance in inventory of $119,000 and ended the year with a balance of $111,000. The net sales for the year were $1,001,000 with a gross profit on sales of $304,000. The inventory turnover ratio is closest to:

A. 6.06

B. 2.74

C. 8.70

D. 2.55

Explanation / Answer

The inventory turnover ratio is an efficiency ratio that shows how effectively inventory is managed by comparing cost of goods sold with average inventory for a period.

Inventory Turnover ratio = Cost of goods sold/Average inventory

Average Inventory=(119000+111000)/2=115000

Cost of Goods Sold=1,001,000-304000=697000

Inventory Turnover Ratio=697000/115000=6.06

Answer is C. 6.06

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