O Level Accounting (7707)•7707/12/M/J/24
Explanation
Inventory Turnover Ratio
Steps:
- Inventory turnover = Cost of Goods Sold (COGS) / Average Inventory.
- Obtain COGS for 2020 from income statement.
- Calculate average inventory: (Opening Inventory + Closing Inventory) / 2.
- Divide COGS by average inventory to get turnover rate.
Why B is correct:
- 20 times matches the formula result using provided financial data for 2020.
Why the others are wrong:
- A: Understates turnover by using ending inventory only, ignoring average.
- C: Overstates slightly due to rounding error in average inventory.
- D: Doubles COGS incorrectly, inflating the ratio.
Final answer: B
Topic: Calculation and understanding of accounting ratios
Practice more O Level Accounting (7707) questions on mMCQ.me