Opening inventory was KSh 200,000, purchases KSh 880,000 and closing inventory KSh 80,000. What is the inventory turnover (cost of sales divided by average inventory)?
Answer and explanation
Correct answer: A. 7.14 times
- Step 1: Cost of sales = 200,000 + 880,000 - 80,000 = 1,000,000. Step 2. Average inventory = (200,000 + 80,000)/2 = 140,000. Step 3. Turnover = 1,000,000 / 140,000 = 7.14 times. Answer: 7.14 times. Why not the others: 8.57 times: That divides sales instead of cost of sales by the average inventory. 12.50 times: That divides by closing inventory instead of the average. 6.29 times: That uses purchases instead of cost of sales.
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