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Beach Wear has cost of goods equal to 12% of revenue. In 2017 the firm had...

Beach Wear has cost of goods equal to 12% of revenue. In 2017 the firm had $2.500.000 in revenue and inverntory of $70,000. In 2018 the firm had $3,000,000 in revenue and $85,000 of inventory. what is the inventory turn over ratio? and does it get worse or improved?

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Answer #1

- Cost of Goods Sold = 12% of Revenue

- In 2017,

Revenue = $2500,000

Cost of Goods Sold = $2500,000*12%

=$300,000

Inventory = $70,000

Inventory Turnover Ratio = Cost of Goods Sold/Inventory

=$300,000/$70,000

= 4.29 times

- In 2018,

Revenue = $3000,000

Cost of Goods Sold = $3000,000*12%

=$360,000

Inventory = $85,000

Inventory Turnover Ratio = Cost of Goods Sold/Inventory

=$360,000/$85,000

= 4.24 times

Inventory Turnover Ratio in 2017 is 4.29 times while Inventory Turnover Ratio in 2018 is 4.24 times.

As, the higher the Inventory Turnover ratio the better it is as firm is able to sell goods quickly.

Thus, decrease in Inventory Turnover ratio indiactes it become worse

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