Question

Refer to the following selected financial information from McCormik, LLC. Compute the company's inventory turnover for Year 2.
Year 2 Year 1
Cash $37,500 36,850
Short-term investments 90,000 90,000
Accounts receivable, net 85,500 86,250
Merchandise inventory 121,000 117,000
Prepaid expenses 12,100 13,500
Plant assets 388,000 392,000
Accounts payable 113,400 111,750
Net sales 711,000 706,000
Cost of goods sold 390,000 385,500
a) 4.72.
b) 4.33.
c) 3.28.
d) 5.78.
e) 3.86.

Answer 1

Answer:

c) 3.28.

Explanation:

Computation for the company's inventory turnover for Year 2.

Using this formula

Inventory Turnover = Cost of Goods Sold / Average Inventory

Let plug in the formula

Inventory Turnover=$390,000/[($121,000+ $117,000)/2]

Inventory Turnover=$390,000/$238,000/2

Inventory Turnover=$390,000/119,000

Inventory Turnover=3.277

Inventory Turnover= 3.28 (Appropriately)

Therefore the company's inventory turnover for Year 2 is 3.28