Question

Using the information below, compute the raw materials inventory turnover:

a. Raw Materials Used $ 104,500 Beginning
b. Raw Materials Inventory 9,900 Ending
c. Raw Materials Inventory 12,800

Answer 1

Answer:

The raw material inventory turnover is 9.2 times or 40 days

Explanation:

This problem requires us to compute raw material inventory turnover. The inventory turnover ratio is calculated by dividing the inventory used for a period by the average inventory for that period. Average inventory is used instead of ending inventory because many companies' merchandise fluctuates greatly throughout the year.

So RM inventory turnover = RM used/Average inventory

                                            = 104,600/11,350*

                                            = 9.2 times or 40 days**

* Average inventory = (9,900+ 12,800)/2

** (365/9.2) = 40 days