The following information pertains to Barkley Company.: The inventory turnover ratio for the year was
A)10.
B)5.
C)4.
D)3.6.

Question

The following information pertains to Barkley Company.:  The inventory turnover ratio for the year was
A)10. 
B)5. 
C)4. 
D)3.6.

Quizplus · Accepted Answer

Inventory turnover ratio = Cost of goods sold / Average inventory
We do not have the cost of goods sold, but we are given that the company had a gross profit margin of 40%. This means that cost of goods sold was 60% of sales. Therefore, we can estimate the cost of goods sold as:
Cost of goods sold = 60% x $400,000 = $240,000
We are also given that the average inventory for the year was $60,000.
Inventory turnover ratio = $240,000 / $60,000 = 4

The Following Information Pertains to Barkley Company