Consider the Following Inventory Data for Two Companies: Which of These

question 38

Multiple Choice

Consider the following inventory data for two companies: Which of these companies had the higher inventory turnover ratio?

• A)Nichols.
• B)Winters.
• C)The ratios are the same for both companies.
• D)Cannot determine with the information given.Nichols' cost of goods sold = $120,000 + $240,000 - $80,000 = $280,000.Nichols' inventory turnover ratio = $280,000 [($120,000 + $80,000)/2)] = 2.80.Winters' cost of goods sold = $150,000 + $310,000 - $100,000 = $360,000.Winters' inventory turnover ratio = $360,000 [($150,000 + $100,000)/2)] = 2.88.

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Definitions:

Economic Growth

An increase in the production of goods and services in an economy over a period of time.

Short-Term Capital Gain

Profit from the sale of an asset held for less than a year, subject to tax at ordinary income tax rates.

Net Working Capital

Represents a measure of a firm's liquidity by calculating the excess of current assets over current liabilities, portraying the company's operational efficiency.

Current Assets

Assets owned by a company that are expected to be converted into cash, sold, or consumed within one year or within the business's normal operating cycle.