Question

Robertson Corporationâs inventory balance was $22,000 at the beginning of the year and $20,000 at the end. The inventory turnover ratio for the year was 6.0 and the gross profit ratio 40%. Whatwere net sales for the year?A. $126,000 B. $200,000 C. $120,000 D. $210,000

Answer 1

Answer:

D. $210000

Explanation:

Given that

Inventory balance at the beginning = 22000

Inventory balance at the end = 20000

Inventory turnover = 6.0

Gross profit ratio = 40%

Average inventory = balance at beginning + balance at end / 2

= 22000 + 20000/2

= 21000

Recall that

Inventory turnover = cost of good sold/average inventory

Thus,

Cost of good sold = inventory turnover × average inventory

= 6.0 × 21000

= $126000

Therefore

Net sales = cost of good/ 1 - gross profit ratio

= 126000/1 - 0.4

= 126000/0.6

= $210,000