George has projected annual merchandise sales of $290,000, cost of goods sold of $215,000, and a turnover rate of 3.0. What is the average inventory level at cost?

George has projected annual merchandise sales of $290,000, cost of goods sold of $215,000, and a turnover rate of 3.0. What is the average inventory level at cost?

• A. 60,000
• B. 72,000
• C. 71,667
• D. 80,000

Answer: (C)

Inventory turnover shows how often inventory is sold and replenished in a year. It is calculated as cost of goods sold divided by average inventory. With a COGS of 215,000 and a turnover of 3.0, the average inventory equals 215,000 divided by 3, which is 71,666.67. Rounding to the nearest dollar gives 71,667. The projected annual sales figure isn’t used in this calculation, since turnover uses COGS and average inventory, not total sales. So the average inventory level at cost is 71,667.

Inventory turnover shows how often inventory is sold and replenished in a year. It is calculated as cost of goods sold divided by average inventory. With a COGS of 215,000 and a turnover of 3.0, the average inventory equals 215,000 divided by 3, which is 71,666.67. Rounding to the nearest dollar gives 71,667. The projected annual sales figure isn’t used in this calculation, since turnover uses COGS and average inventory, not total sales. So the average inventory level at cost is 71,667.