Caesar's Coffee has beginning inventory of $15,000, ending inventory of $20,000, and cost of goods sold $50,000. Caesar's could operate for approximately 4 months without buying more inventory.

Question

Quizplus · Accepted Answer

The inventory turnover ratio can be calculated as (cost of goods sold) / (average inventory). If we assume that the inventory turnover is consistent throughout the year, we can estimate the average inventory as (beginning inventory + ending inventory) / 2 = ($15,000 + $20,000) / 2 = $17,500. Substituting this into the inventory turnover formula, we get ($50,000) / ($17,500) = 2.86. This means that Caesar's Coffee sells through its inventory approximately 2.86 times per year, or once every (365 days / 2.86) = 127 days. Since the question states that Caesar's can operate for approximately 4 months (which is 120 days) without buying more inventory, this is consistent with the estimated inventory turnover. Therefore, the answer is A (true).

Caesar's Coffee Has Beginning Inventory of $15,000, Ending Inventory of $20,000