If the Lamy Company has a return on sales of 10% and its inventory turnover is 9, what is its annual cost of goods sold (COGS)? Also assume that Lamy's average inventory is $96,700 and its annual sales are $1,000,000.

Question

Quizplus · Accepted Answer

COGS = Sales / (1 - Return on sales) = 1,000,000 / (1 - 0.1) = 1,111,111.11
Inventory turnover = Cost of goods sold / Average inventory
Therefore, Cost of goods sold = Inventory turnover x Average inventory = 9 x $96,700 = $870,300. Therefore, the correct answer is C.

If the Lamy Company Has a Return on Sales of 10