Net sales $ 250,000 Cost of goods sold 180,000 Beginning inventory 55,000 Ending inventory 45,000 a. Calculate the inventory turnover ratio. (Round your answer to 1 decimal place.) b. Calculate the average days in inventory. (Assume 365 days in a year. Round your intermediate calculations and final answer to 1 decimal place.) c. Calculate the gross profit ratio.

a. 3.60

b. 101.39 days

c. 28%

Explanation:

a. Inventory turnover ratio = Cost of goods sold / Average inventory

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

= ($55,000 + $45,000)/2

= $50,000

Cost of goods sold = $180,000

Therefore, inventory turnover = $180,000 / $50,000

= 3.60

b. Average days in inventory

= Number of days in year / Inventory turnover ratio

= 365 / 3.6

= 101.39 days

c. Gross profit ratio

Sales

$250,000

Less: cost of goods sold

($180,000)

Gross profit

$70,000

Therefore, Gross profit ratio

= Gross profit / sales

= $70,000 / $250,000

= 28%

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