During the year just ended,James Company purchased $425,000 of inventory.The inventory balance at the beginning of the year was $175,000.If the cost of goods sold for the year was $450,000,then the inventory turnover for the year was:
A) 2.57 times.
B) 2.62 times.
C) 2.77 times.
D) 3.00 times.

Question

Quizplus · Accepted Answer

Inventory turnover is calculated as cost of goods sold divided by average inventory. To find the average inventory, we add the beginning inventory to the ending inventory and divide by two. In this case, we are not given the ending inventory, but we can use the inventory purchases to estimate it.

Ending inventory = Beginning inventory + Inventory purchases - Cost of goods sold
Ending inventory = $175,000 + $425,000 - $450,000
Ending inventory = $150,000

Average inventory = ($175,000 + $150,000) / 2
Average inventory = $162,500

Inventory turnover = Cost of goods sold / Average inventory
Inventory turnover = $450,000 / $162,500
Inventory turnover = 2.77 times

Therefore, the best choice is (C) 2.77 times.

During the Year Just Ended,James Company Purchased $425,000 of Inventory