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Compute the inventory turnover ratio and average selling period from the following data of a trading...

Compute the inventory turnover ratio and average selling period from the following data of a trading company: Sales: $75,000 Gross profit: $35,000 Opening inventory: $9,000 Closing inventory: $7,000

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Answer #1
Inventory Turnover
Choose Numerator: / Choose Denominator: = Inventory Turnover
Cost of goods sold / Average inventory = Inventory Turnover
$40,000 / $8,000 = 5.0 times
average selling period
Choose Numerator: / Choose Denominator: x Days = average selling period
Merchandise inventory / Cost of goods sold x 365 = Days’ Sales in Inventory
                         7,000 / $40,000 x 365 = 63.875 days

Average Inventory = (Beg. Inventory + ending Inventory)/2

Cost of goods sold = Sales - Gross Profit

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