A company that specializes in planning parties for children had $7,000 worth of inventory on January 1,2007,and it had $5,000 worth of inventory on December 31,2007.If its cost of goods sold for that period was $10,000,and its net profit was $9,000,which of the following represents its inventory turnover ratio?

Question

Quizplus · Accepted Answer

The formula for inventory turnover ratio is:

Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory

To calculate average inventory, we add the beginning inventory and ending inventory and divide by 2.

Average Inventory = (Beginning Inventory + Ending Inventory) / 2
                = ($7,000 + $5,000) / 2
                = $6,000

Now, we can calculate the inventory turnover ratio:

Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory
                        = $10,000 / $6,000
                        = 1.67 times

Therefore, the answer is B) 1.67 times.

A Company That Specializes in Planning Parties for Children Had