Last year,Dunn Company purchased $1,920,000of inventory.The cost of good sold was $1,800,000,and the ending inventory was $360,000.What was the inventory turnover?

Question

Quizplus · Accepted Answer

Inventory turnover is calculated by dividing the cost of goods sold by the average inventory level.

Average inventory = (Beginning inventory + Ending inventory) / 2

In this case, the beginning inventory level is not given, so we will assume that it was equal to the ending inventory level.

Average inventory = ($360,000 + $360,000) / 2 = $360,000

Inventory turnover = Cost of goods sold / Average inventory

Inventory turnover = $1,800,000 / $360,000 = 5.0 times

Therefore, the inventory turnover based on the given information is 5.0 times.

However, since we do not have the beginning inventory level, we should also consider the inventory turnover if we assume that the beginning inventory was equal to the average inventory.

Average inventory = ($1,920,000 + $360,000) / 2 = $1,140,000

Inventory turnover = Cost of goods sold / Average inventory

Inventory turnover = $1,800,000 / $1,140,000 = 6.0 times

Therefore, the best choice for the inventory turnover is C) 6.0 times, assuming the beginning inventory was equal to the average inventory level.

Last Year,Dunn Company Purchased $1,920,000of Inventory