Annual cost of goods sold is $500,000 for company A as well as company B. Averag

Question

Annual cost of goods sold is $500,000 for company A as well as company B. Average inventory is the same at both firms. The annual revenue in company A is $800,000, and that in company B is $700,000. Which firm has a higher turnover ratio?

We cannot tell from the data provided.

Company A has the higher turnover ratio

Company B has the higher turnover ratio

Both have the same turnover ratio.

We cannot tell from the data provided.

Company A has the higher turnover ratio

Company B has the higher turnover ratio

Both have the same turnover ratio.

Explanation / Answer

we use two different formulas to caculate turnover ratio

1. sales/ inventory

2. cost of goods sold/ average inventory

by using second formula we can say that the company A has higher turnover ratio.

so, option B is correct.

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