Answer (B) is correct . The inventory turnover ratio equals cost of goods sold divided by the average inventory balance. Broomall’s inventory turnover for the year was thus 5 times {$140,000 cost of goods sold ÷ [($26,000 + $30,000) ÷ 2] average inventory}.
Answer (A) is incorrect because A turnover rate of 4.667 results from using ending, rather than average, inventory in the denominator.
Answer (C) is incorrect because A turnover rate of 5.385 results from using beginning, rather than average, inventory in the denominator.
Answer (D) is incorrect because A turnover rate of 7.86 results from using sales, rather than cost of goods sold, in the numerator.
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Broomall’s average inventory turnover for the year was