Given:
Sales = $60,000
Cost of goods = $20,000
Beginning inventory = $1,600
Ending inventory = $2,400
To find:
Inventory turn over ratio
Solution:
To calculate the inventory rate initially we have to determine the average inventory,
[tex]\text{Average inventory }=\frac{\text { Beginning inventory + Ending inventory }}{2}\\\\ \Rightarrow\frac{1600+2400}{2}\rightarrow\frac{4000}{2}\rightarrow\$2000[/tex]
The formula to calculate the inventory turn over ratio is as follows,
[tex]\text{Inventory turnover ratio }=\frac{\text{Cost of goods sold}}{\text{Average inventory}}\rightarrow\frac{20000}{2000}\rightarrow10\text{ times}[/tex]
Therefore, the company's inventory turnover ratio equals 10 times that is, Option d.
