Question

Sales for 2013 grow by 25% Therefore, Sales for 2013 = 125410 x 125% = $ 156,763 Inventory turnover ratio for 2013 = 4.5 Sales/average inventory = 4.5 Average inventory = Sales/ 4.5 (31353+inventory at the end of 2013)/2 = 156763/4.5 (31353+inventory at the end of 2013)/2 = 34836 Inventory at the end of 2013 = 34836*2-31353 = 38319 Option b) is correct.

This part I do not understand can someone please explain
However using COGS for inventory turnover ratio is more correct since inventory is at cost and does not includes profits. If we use COGS instead of sales, answer would be $26,475 which is more appropriate. Can someone provide the steps on how we came to 26475?

Answer 1

	2012	Increase by 25%	2013
Sale	125410	31352.5	156763

Inventory turnover ratio=Sales/average inventory

4.5=156763/average inventory

156763/4.5=Average inventory

34836=Average inventory

Average inventory=(beginning +ending)/2

34836=(31353+ending)/2

34836*2=31353+ending

69672=31353+ending

69672-31353=Ending inventory

38318=Ending inventory

Inventory turnover ratio=COGS/average inventory                                       4.5=COGS/28913                          4.5*28913=COGS                                130113=COGS

Average inventory=(beginning+ ending)/2 Average inventory=(31351+26475)/2 Average inventory=28913

In second case gross profit not given. So I take ending inventory and explain and COGS find.