Maple Leaf,Inc.,a television manufacturer,would like to reduce its inventory.To this end,you are asked by the operations manager to assess its inventory level.You have the following information on inventories from last year's financial statement:
Raw materials $2,500,000
Work-in-process $1,000,000
Finished goods $ 800,000
In addition,the cost of goods sold last year (50 weeks)was $15 million.What was the inventory turnover?

Question

Quizplus · Accepted Answer

Inventory turnover is calculated as Cost of Goods Sold divided by Average Inventory. The total inventory is $4,300,000 ($2,500,000 + $1,000,000 + $800,000). Inventory turnover = $15,000,000 / $4,300,000 = 3.49, which is greater than or equal to 3 but less than 4.