Question

Use the following information for Shafer Company to compute inventory turnover for year 2.

Answer 1

Answer:

The inventory turnover ratio for the Year 2 is 4.90

Explanation:

The formula to compute the inventory turnover ratio is as:

Inventory turnover ratio (ITR) = COGS (Cost of goods Sold) / Average Inventory

where

COGS amounts to $389,400

And the formula for computing the Average Inventory is as:

Average Inventory = Beginning Inventory + Ending Inventory / 2

where

Beginning inventory is $80,280

Ending inventory is $78,600

Putting the values above in the formula:

= $80,280 + $78,600 / 2

= $158,880 / 2

= $79,440

Now putting the values above in the inventory turnover ratio as

ITR = $389,400 / $79,440

= 4.90

Answer 2

Answer:

4.90

Explanation:

Given:                           Year 2                   year 1

net sales:                     $652,000            $583,800

Cost of goods sold:     $389,400            $360,930

Ending inventory          $78,600              $80,280

We know, Inventory turnover= $\frac{Cost\ of\ goods\ sold}{Average\ Inventory}$

First, lets find out the Average inventory.

Average inventory= $\frac{78600+80280}{2}$

∴ Average inventory= $\frac{158880}{2} = 79440$

Hence, Average inventory= is 79440.

Now, finding the inventory turnover for year 2.

Inventory turnover= $\frac{389400}{79440}$

∴ Inventory turnover= 4.90

Hence, Inventory turnover for year 2 is 4.90