Question

Anthony Corporation reported the following amounts for the year: Net sales $ 296,000 Cost of goods sold 138,000 Average inventory 50,000 Anthony's inventory turnover ratio is: 23) A) 2.76. B) 2.14. C) 3.21. D) 2.42.

please explain why as well. Please and Thank you!

Answer 1

Inventory Turnover Ratio =Cost of goods sold / Average Inventory
Inventory Turnover Ratio =$138,000 / 50,000 =2.76
So option A is answer
Inventory Turnover is the number of times a company sells and replaces its
stock of goods during the period.It provides insight upon the fact that whether
the company is managing its stock properly or not.
Higher the Inventory turnover better it is for the company as higher inventory turnover means
that there is good demand for the company's products and it is making sales very quickly.
Similarly lower the Inventory turnover means that the sales are weak and low demand of product
One more thing I would like to add that Average inventory is used for calculation of ratio because
it might happen that the company may have different levels of stock at different period of time, so
when average inventory is taken it nullifies that fluctuation