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Sales are $260,000. Purchases are $150,000. Opening inventory is 22,000. Closing inventory is $26,000.
What is the is the inventory turnover?Answer is 5.6 times and I’m not sure how they calculated this?
Inventory Turnover = Cost of Goods Sold / Average Inventory
Cost of Goods Sold = 22000+150000-26000= 146000
Average Inventory = 22000+26000 / 2 = 24000
Inventory Turnover = 146000 / 24000 = 6.08
to my opinion if there is no any mistake relating to figures , then answer should be 6.08 ..
Murad is right – the correct answer is 6.08.
I do not know where you got this question from.
However I am guessing that they have taken cost of sales / inventory at the end of the year.
Sometimes we have no choice but to use the closing inventory because we do not have the opening figure, but here we do know opening and closing inventories and so they should have used the average.24000/146000 *365 = 6 Average Inventory turnover period
146000/24000 = 6.08 Average Rate of Inventory turnover
they did 146000/26000 = 5.6 Inventory turnover
The question specifies inventory turnover and not Average inventory turnover.
Are you sure you always use the average ?
My previous reply stays the same.
We should use average inventory (try looking it up yourself on Google).
However, often we only have closing inventory and then have no choice.
In practice you do whatever you think is more sensible for the particular business – there are no laws or rules or anything involved.
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