Caruso,Inc.has an inventory turnover ratio of 8 times.If its cost of goods sold is $150,000,then
A)the company will report sales of $1,200,000.
B)the gross margin will be $1,200,000.
C)the company's average inventory is $18,750.
D)it sells its inventory 1,200 times per year.

Question

Quizplus · Accepted Answer

The inventory turnover ratio is calculated by dividing the cost of goods sold by the average inventory.

Inventory turnover ratio = Cost of Goods Sold / Average Inventory

Given that the inventory turnover ratio is 8 and the cost of goods sold is $150,000, we can calculate the average inventory as follows:

Average Inventory = Cost of Goods Sold / Inventory turnover ratio = $150,000 / 8 = $18,750

Therefore, the correct choice is C, which states that the company's average inventory is $18,750.