Learning Objective 5-6
1) Lito & Sons Woodworks has a beginning inventory of $60,000 and ending inventory of $84,000 for the current period. The company had sales of $340,000 and cost of goods sold of $200,000 during the period. What was the inventory turnover?
A) 4.72 times
B) 3.66 times
C) 2.78 times
D) 1.55 times
2) Gaffney & Sons Woodworks has a beginning inventory of $160,000 and ending inventory of $180,000 for the current period. The company had sales of $500,000 and cost of goods sold of $300,000 during the period. What was the inventory turnover?
A) 4.50 times
B) 2.94 times
C) 2.00 times
D) 1.76 times
3) Assume Taylor & Sons Cabinet Makers has an inventory turnover ratio of 4.5 for the year ended November 30, 2011. Which statement below is the best interpretation of the ratio?
A) The company was able to sell the inventory 4.5 times faster than last year.
B) The company has 4.5 times as much inventory as it has current liabilities.
C) The company sells its average inventory balance 4.5 times per year.
D) The company sells its inventory at a greater rate than other companies in its industry.
4) Assume Taylor & Sons Cabinet Makers had a gross profit ratio of 30%, 35%, and 40% over the most recent three years. Which statement below is the best interpretation of the data?
A) The company may be having trouble selling its inventory.
B) The company is selling more inventory than in prior years.
C) The company is increasing its selling price per unit or having its inventory costs per unit decrease.
D) The company has been decreasing its selling price but selling more units.
5) Assume Tyler, Inc. had a gross profit ratio of 30%, 25%, and 20% over the most recent three years. Which statement below is the best interpretation of the data?
A) The company is selling more inventory than in previous years.
B) The company is decreasing its selling price per unit or having its inventory costs per unit increase.
C) The company’s managers are doing a good job of controlling inventory costs and selling price.
D) The company is not selling as much inventory as in previous years.
6) Johnson Supply Company had sales of $1,000,000, Cost of goods sold was $600,000 and operating expenses were $340,000. The beginning cash balance was $400,000 and the ending cash balance was $220,000. Net cash flows from operating activities were $960,000. What is the company’s gross profit ratio?
A) 20%
B) 40%
C) 60%
D) 35%
7) Which financial statement(s) do you need to calculate a company’s inventory turnover ratio?
A) only the income statement
B) only the balance sheet
C) both the income statement and the balance sheet
D) both the balance sheet and the statement of cash flows
8) Which financial statement(s) do you need to calculate a company’s gross profit ratio?
A) only the income statement
B) only the balance sheet
C) both the income statement and the balance sheet
D) both the balance sheet and the statement of cash flows
9) Thyme, Inc.’s inventory turnover ratio has been approximately 6 times per year over the past few years. This year Thyme decided to reduce the amount of inventory it keeps on hand. What effect will this new policy have on its inventory turnover ratio for the current year?
A) The ratio will increase.
B) The ratio will decrease.
C) The inventory turnover ratio will stay the same.
D) This is a trick question. The amount of inventory on hand has nothing to do with a company’s inventory turnover ratio.
10) Which of the following companies will probably have the highest inventory turnover ratio?
A) Auto dealership
B) Clothing store
C) Bakery
D) All of these companies will have the same inventory turnover ratio.