35. A company reported cost of goods sold of $425,000 for a year. The company's beginning balance of inventory (on January 1) was $32,000, and its ending balance of inventory (on December 31) was $41,000. What was the company's inventory turnover for the year, rounded to two decimal places?
Answer: D
The company's inventory turnover for the year is 6.97.
Inventory turnover is calculated by dividing the cost of goods sold by the average inventory. With a cost of goods sold of $425,000 and an average inventory calculated as ($32,000 + $41,000) / 2, the resulting inventory turnover is 6.97.
A) 39.93
This option is incorrect as it significantly overstates the inventory turnover ratio. A turnover of 39.93 would imply an extremely high efficiency in inventory management that is not supported by the provided cost of goods sold and inventory figures.
B) 52.39
This choice is also incorrect. An inventory turnover of 52.39 suggests that the company is selling and replacing its inventory at an unrealistically high rate given the reported cost of goods sold of $425,000 and the average inventory amount.
C) 9.14
While this option may seem plausible, it is incorrect based on the calculated turnover. The figure of 9.14 would indicate a much higher inventory turnover than what is derived from the actual figures provided for cost of goods sold and average inventory.
D) 6.97
This option is the correct answer. The inventory turnover ratio is appropriately calculated as cost of goods sold divided by the average inventory, yielding 6.97. This reflects a standard turnover rate for many industries, aligning with the provided financial data.
Conclusion
The correct inventory turnover of 6.97 demonstrates the company's efficiency in managing its inventory relative to its sales. Other options fail to accurately reflect the relationship between the cost of goods sold and the average inventory, resulting in inflated turnover rates that do not represent the company's actual performance.