Adama’s opening stock is D5,000. He purchased goods worth D30,000. His closing stock was D7,000 and sales D55,000
A. 11 times
B. 6 times
C. 4.7 times
D. 4 times
Correct Answer: Option C
C. 4.7 times
Explanation
How to calculate inventory turnover?
- Determine the Cost of Goods from your annual income statement.
- Add your Beginning Inventory to your Ending Inventory.
- Divide the sum of the Beginning and Ending inventory in half to calculate the Average Inventory.
- Calculate the Inventory Turnover by dividing the Cost of Goods Sold by the Average Inventory.
rate of turnover= cost of goods sold / average stock.
cost of goods sold= opening stock + purchases – closing stock
5,000 + 30,000= 35,000 – 7,000 = 28,000
Average stock is gotten as; 5000 + 7000 = 12,000 / 2 = 6,000
therefore rate of turnover= 28,000 / 6,000= 4.7 times
