Harvey Supplies Inc. has a current ratio of 3.0, a quick ratio of 2.4, and an inventory turnover ratio of 6. Harvey's total assets are $1 million and its debt ratio is 0.20. The firm has no long-term debt. What is Harvey's sales figure?

Question

Quizplus · Accepted Answer

The correct answer is A.The sales figure can be calculated using the inventory turnover ratio. The inventory turnover ratio is calculated by dividing the cost of goods sold by the average inventory. The average inventory is calculated by adding the beginning inventory and the ending inventory and dividing by 2.In this case, the inventory turnover ratio is 6. This means that Harvey Supplies Inc. sells its inventory 6 times per year.The cost of goods sold can be calculated by multiplying the sales figure by the cost of goods sold percentage. The cost of goods sold percentage is calculated by dividing the cost of goods sold by the sales figure.In this case, the cost of goods sold percentage is not given. However, we can assume that it is 60%. This is a common assumption for manufacturing companies.If we assume that the cost of goods sold percentage is 60%, then the cost of goods sold is $600,000.The sales figure can be calculated by dividing the cost of goods sold by the inventory turnover ratio.In this case, the sales figure is $1,000,000.