Saw Ltd's inventory at 30 June 2016 it was $20 000.Sales for the year ended 30 June 2016 were $125 000 and the gross margin was 20 per cent.
-What was the inventory turnover?

Question

Quizplus · Accepted Answer

Inventory turnover = Cost of goods sold / Average inventory
Since we don't have the cost of goods sold or the average inventory, we can use the formula:
Gross margin = Gross profit / Sales
20% = Gross profit / $125 000
Therefore, Gross profit = 0.20 x $125 000 = $25 000
Cost of goods sold = $125 000 - $25 000 = $100 000

Now we can calculate the average inventory for the year:
Average inventory = (Beginning inventory + Ending inventory) / 2
We only have the ending inventory, which is $20 000.
Assuming the beginning inventory was also $20 000, then the average inventory is:
($20 000 + $20 000) / 2 = $20 000

Inventory turnover = $100 000 / $20 000 = 5 times p.a.

Saw Ltd's Inventory at 30 June 2016 It Was $20