Henderson Corporation is a supplier of alloy ball bearings to auto manufacturers

Question

Henderson Corporation is a supplier of alloy ball bearings to auto manufacturers in Detroit. Because of the specialized manufacturing process employed, considerable workminusinminusprocess and raw material inventories are created. The average inventory levels are $1,652,000 and $3,225,000, respectively. In addition, finished goods inventory is $3,725,000, and sales (at cost) for the current year are expected to be about $20 million. The inventory turnover that Henderson Corporation is currently expecting is:

A. greater than 2.5 but less than 3.0.

B. greater than 2.0 but less than 2.5.

C. less than 2.0.

D. greater than 3.0.

Explanation / Answer

D. Greater Than 3

Inventory Turnover = Cost of goods Sold/average inventory

= 2 million/{(1652000+3225000)/2}

= 8.2

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