Calculate the Average Inventory and Inventory Turnover

question 40

Essay

Calculate the average inventory and inventory turnover. If the actual turnover is below the published rate, calculate the target average inventory necessary to come up to industry standards, rounding to the nearest tenth: $$\begin{array} { l l l } \text { Cost of Goods Sold } & \text { B eginning Inventory } & \text { Ending Inventory } \\\hline \$ 506,000 & \$ 28,000 & \$ 32,000 \\\$ 183,000 & \$ 25,600 & \$ 28,000 \\\$ 6,520,000 & \$ 1,565,000 & \$ 1,590,000 \\\$ 1,260,000 & \$ 115,000 & \$ 90,000\end{array}$$ $$\begin{array} { l l l l l } & \text { Average } & \text { Inventory } \\\text { Inventory } & \text { Turnover } & \begin{array} { l } \text { Published } \\\text { Rate }\end{array} & \begin{array} { l } \text { Target Average } \\\text { Inventory }\end{array} \\\hline \text { a. } & & 14.3 & \\\text { b. } & & 7.5 & \\\text { c. } & & 5.0 & \\\text { d. } & & 18.0 &\end{array}$$

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Definitions:

Contribution Format

A type of income statement where fixed and variable costs are separated to calculate contribution margin.

Traditional Format

A method of organizing income statement or other financial statements using a conventional structure, typically separating costs into fixed and variable categories.

Variable Selling Expense

Costs that vary directly with the volume of sales or production, such as commissions and shipping charges.

Fixed Selling Expense

The costs associated with selling a product or service that do not vary with sales volume, such as salaries of sales staff and advertising expenses.