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Found in: Page 1447

Intermediate Accounting (Kieso)

Book edition 16th
Author(s) Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield
Pages 1552 pages
ISBN 9781118743201

Answer each of the questions in the following unrelated situations.b) A company had an average inventory last year of $200,000 and its inventory turnover was 5. If sales volume and unit cost remain the same this year as last and inventory turnover is 8 this year, what will average inventory have to be during the current year? The average inventory is$125,000.

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Meaning Inventory Turnover Ratio

The inventory turnover ratio can be found by dividing the cost of goods sold by average inventory. It is a useful indicator of a company's ability to convert inventory into sales.

Determining the average inventory during the current year

Hence, the average inventory = \$125,000