Consider a firm with an annual net income of $30 million, revenue of $70 million and cost of goods sold of $35 million. If the balance sheet amounts show $3.5 million of inventory and $800,000 of property, plant & equipment, what is the inventory turnover?

a. 12.50

b. 4.44

c. 17.50

d. 5.00

e. 10.00

The answer is 5.2 million

Explanation:

Solution

Given that:

The cost of good sold is = $35 million

Inventory = $3.5 million

Thus we compute for the Inventory turnover which is given below:

Inventory turn over ratio (ITR)

=Cost of goods sold/Inventory

=35$million/$3.5 million

=$10 million

So,

The weekly supply = The number of week in a year / ITR

= 52 Weeks/$10 million

=5.2

Therefore the turnover of inventory is 5.2 million which is close to option (d) 5.00