Answered

The following information was taken from Baxter Department Store's financial statements:
Inventory on January 1 $ 100,000
Inventory on December 31 300,000
Net sales 2,000,000
Net purchases 700,000
What was Baxter's inventory turnover for the year ending December 31?

A. 2.5
B. 3.5
C. 5
D. 10

Answer :

Answer:

500,000÷  200,000 = 2.5

Explanation:

inventory turnover is calculated as

cost of goods sold ÷ Average inventory

From the information of Baxter department store's financial statement, cost of goods sold can be calculated as

Opening inventory + purchases - closing inventory  

100,000 + 700,000 - 300,000 = 500,000

cost of goods sold = 500,000

Average stock is calculated as opening inventory + closing inventory ÷ 2

100,000 + 300,000 ÷ 2 = 200,000  

Average inventory = 200,000

Therefore inventory turnover = 500,000÷  200,000 = 2.5

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