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Inventory Turnover

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FA – FIA FFA › Inventory Turnover

  • This topic has 6 replies, 3 voices, and was last updated 11 years ago by John Moffat.
Viewing 7 posts - 1 through 7 (of 7 total)
  • Author
    Posts
  • February 13, 2014 at 1:40 pm #158582
    Anonymous
    Inactive
    • Topics: 17
    • Replies: 53
    • ☆☆

    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?

    February 13, 2014 at 2:40 pm #158587
    muradn
    Member
    • Topics: 50
    • Replies: 53
    • ☆☆

    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 ..

    February 13, 2014 at 4:54 pm #158604
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54681
    • ☆☆☆☆☆

    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.

    February 15, 2014 at 3:25 pm #158898
    Anonymous
    Inactive
    • Topics: 17
    • Replies: 53
    • ☆☆

    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 ?

    February 15, 2014 at 3:32 pm #158901
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54681
    • ☆☆☆☆☆

    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.

    February 15, 2014 at 4:04 pm #158907
    Anonymous
    Inactive
    • Topics: 17
    • Replies: 53
    • ☆☆

    ok thanks

    February 15, 2014 at 4:06 pm #158909
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54681
    • ☆☆☆☆☆

    You are welcome 🙂

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