What is the rate of turnover from the table?

	#
sales	15,000
opening stock	5,600
purchase	9,700
closing stock	4,400
gross profit	4,500
net profit	2,000

 

A. 3.50 times
B. 3.00 times
C. 2.00 times
D. 2.18

Correct Answer:

Option D – 2.18

Explanation

Definition of rate of turnover: Number of times a firm sells out its merchandise or finished goods inventory, computed by dividing the total sales revenue in a period by the average inventory in that period.
The inventory turnover ratio is calculated by dividing the cost of goods sold for a period by the average inventory for that period. Average inventory is used instead of ending inventory because many companies’ merchandise fluctuates greatly throughout the year. thus we have;

cost of goods sold = opening stock + puchases – closing stock
5600+ 9700 = 15300 – 4400 = 10900 (to get the average inventory, add the opening and closing stock, then divide it by 2. thus we have);

opening stock + closing stock / 2
5600 + 4400=10000 / 2 = 5000

rate of turn over = 10900/5000 = 2.18 times