Question

One product line has 10 turns per year and an annual sales volume (at cost) of $985,000. How much inventory is being held, on average?

Answer 1

The average inventory being held is $98,500.

Step-by-step explanation:

To calculate the average inventory being held, we can use the inventory turnover ratio formula. The formula is: Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory. In this case, the annual sales volume at cost is $985,000, which represents the Cost of Goods Sold. We are given that the product line has 10 turns per year, so we can divide the Cost of Goods Sold by 10 to find the Average Inventory. Therefore, the average inventory being held is $98,500.