Henderson Corporation is a supplier of alloy ball bearings to auto manufacturers in Detroit. Because of the specialized manufacturing process employed, considerable work-in-process and raw material inventories are created. The average inventory levels are $1,152,000 and $2,725,000, respectively. In addition, finished goods inventory is $3,225,000, and sales (at cost) for the current year are expected to be about $24 million. The inventory turnover that Henderson Corporation is currently expecting is:

Question

Quizplus · Accepted Answer

To calculate inventory turnover, you add up the average inventory levels (work-in-process, raw materials, and finished goods) and divide the sales at cost by this total inventory. The total inventory is $1,152,000 (work-in-process) + $2,725,000 (raw materials) + $3,225,000 (finished goods) = $7,102,000. The sales at cost are $24,000,000. So, the inventory turnover is $24,000,000 / $7,102,000 ≈ 3.38, which is greater than 3.0.

Henderson Corporation Is a Supplier of Alloy Ball Bearings to Auto