Question

The following information was taken from the income statement of Hadley Co.:

Beginning inventory $ 17,000

Purchases 56,000

Ending inventory 13,000

What is Hadley Co.'s inventory turnover?

Answer 1

1. Computation of cost of goods sold as follows:

Beginning inventory $ 17,000

+ Purchases 56,000

Less: Ending inventory (13,000)

Cost of goods sold $ 60,000

2. Computation of average inventory:

(Beginning inventory + Ending inventory) / 2 = Average inventory

(17,000 + 13,000) / 2 = 15,000

3. Computation of inventory turnover:

Cost of Goods Sold / Average inventory = Inventory Turnover

$60,000 / 15,000 = 4

Hadley Co.'s inventory turnover is 4.