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Sagot :
The highest inventory turnover ratio comes out to be 2.88 rimes of Company W in comparison to Company N.
What is the cost of sales?
Cost of sales, also known as cost of goods sold, is the amount of producing the goods or services which are being sold by the company.
Given values:
Particulars Company N Company W
Inventory at the beginning $ 120,000 $150,000
Inventory at the end $ 80,000 $100,000
Purchases $240,000 $310,000
Step-1 Computation of cost of goods sold of Company N:
[tex]\rm\ Cost \rm\ of \rm\ Goods \rm\ sold = \rm\ Beginning \tm\ Inventory+ \rm\ Purchases-Ending \rm\ Inventory\\\rm\ Cost \rm\ of \rm\ Goods \rm\ sold=\$120,000+\$240,000-\$80,000\\\rm\ Cost \rm\ of \rm\ Goods \rm\ sold=\$280,000[/tex]
Step-2 Computation of average inventory of Company N:
[tex]\rm\ Average \rm\ Inventory= \frac{\rm\ Beginning \tm\ inventory+Ending \rm\ inventory}{2}\\\rm\ Average \rm\ Inventory=\frac{\rm\ \$120,000+\$80,000}{2}\\\rm\ Average \rm\ Inventory=\$100,000[/tex]
Step-3 Computation of inventory turnover ratio of Company N:
[tex]\rm\ Inventory \rm\ turnover \rm\ ratio = \frac{\rm\ Cost \rm\ of \rm\ goods \rm\ sold}{\rm\ Average \rm\ inventory} \\\rm\ Inventory \rm\ turnover \rm\ ratio=\frac{\$280,000}{\$100,000} \\\rm\ Inventory \rm\ turnover \rm\ ratio=2.80 times[/tex]
Step-4 Computation of cost of goods sold of Company W:
[tex]\rm\ Cost \rm\ of \rm\ Goods \rm\ sold = \rm\ Beginning \tm\ Inventory+ \rm\ Purchases-Ending \rm\ Inventory\\\rm\ Cost \rm\ of \rm\ Goods \rm\ sold=\$150,000+\$310,000-\$100,000\\\rm\ Cost \rm\ of \rm\ Goods \rm\ sold=\$360,000[/tex]
Step-5 Computation of average inventory of Company W:
[tex]\rm\ Average \rm\ Inventory= \frac{\rm\ Beginning \tm\ inventory+Ending \rm\ inventory}{2}\\\rm\ Average \rm\ Inventory=\frac{\rm\ \$150,000+\$100,000}{2}\\\rm\ Average \rm\ Inventory=\$125,000[/tex]
Step-6 Computation of inventory turnover ratio of Company W:
[tex]\rm\ Inventory \rm\ turnover \rm\ ratio = \frac{\rm\ Cost \rm\ of \rm\ goods \rm\ sold}{\rm\ Average \rm\ inventory} \\\rm\ Inventory \rm\ turnover \rm\ ratio=\frac{\$360,000}{\$125,000} \\\rm\ Inventory \rm\ turnover \rm\ ratio=2.88 times[/tex]
Therefore, Company W has an inventory turnover ratio of 2.88 times which is higher than the inventory turnover ratio of Company N.
Learn more about the inventory turnover ratio in the related link:
https://brainly.com/question/13671307
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