The inventory turnover ratio is annual cost of goods sold divided by average inventory. This is annual cost of goods sold divided by the ending inventory. Whenever we relate an income statement amount such as cost of sales to a balance sheet amount such as inventory, we need to use the average balance of the balance sheet amount, not the beginning or ending balance.
The inventory turnover ratio is annual cost of goods sold divided by average inventory. Average inventory is ($6,400 + $7,600) ÷ 2, which is $7,000; so the inventory turnover ratio is $24,500 / $7,000, which equals 3.5 times.
The inventory turnover ratio is annual cost of goods sold divided by average inventory. This is credit sales divided by year-end inventory. Remember that the sale price includes profit for the seller. The cost of sales is the cost of the inventory sold, so that is the amount that must be used when analyzing inventory turnover. Furthermore, whenever we relate an income statement amount such as cost of sales to a balance sheet amount such as inventory, we need to use the average balance of the balance sheet amount, not the ending balance.
The inventory turnover ratio is annual cost of goods sold divided by average inventory. This is credit sales divided by average inventory. Remember that the sale price includes profit for the seller. The cost of sales is the cost of the inventory sold, so that is the amount that must be used when analyzing inventory turnover.
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Total sales for the year were $85,900, of which $61,400 were credit sales. The cost of goods sold was $24,500. Lampasso's inventory turnover ratio for the year was