Question
With the information given below, what is the inventory
turnover ratio of the firm? Sales = 500,000 Gross profit =100,000 Opening inventory =40,000 Closing inventory =60,000Solution
Inventory turnover ratio is computed by dividing the cost of goods sold (COGS) by average inventory at cost. COGS = Sales- gross profit = 500,000-100,000= 400,000 Average Inventory = (Opening inventory + Closing inventory) / 2 = (40,000+60,000)/2 = 50,000 Inventory turnover ratio =400,000/50,000= 8
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