The owner of a large machine shop has just finished its financial analysis from the prior fiscal year. Following is an excerpt from the final report:

Net revenue	$340,000
Cost of goods sold	301,000
Value of production materials on-hand	42,500
Value of work-in-process inventory	51,000
Value of finished goods on-hand	19,500
Compute the inventory turnover ratio (ITR).

Note: Round your answer to 1 decimal place.

The Inventory Turnover Ratio (ITR) is calculated using the formula:

\[
\text{Inventory Turnover Ratio (ITR)} = \frac{\text{Cost of Goods Sold (COGS)}}{\text{Average Inventory}}
\]

### Step 1: Calculate the Average Inventory
The average inventory is typically calculated by taking the sum of the beginning and ending inventory and dividing it by 2. However, in this problem, we only have the ending inventory values for three categories: production materials, work-in-process, and finished goods. So, the average inventory will be the sum of these values:

\[
\text{Average Inventory} = \text{Value of production materials} + \text{Value of work-in-process inventory} + \text{Value of finished goods}
\]

\[
\text{Average Inventory} = 42,500 + 51,000 + 19,500 = 113,000
\]

### Step 2: Calculate the Inventory Turnover Ratio
Now, using the COGS and the calculated average inventory:

\[
\text{ITR} = \frac{301,000}{113,000} \approx 2.7
\]

### Final Answer:
\[
\text{Inventory Turnover Ratio (ITR)} \approx 2.7
\]

This means the inventory was turned over about 2.7 times during the fiscal year.

Would you like more details or have any questions about this calculation?

### Related Questions:
1. What does a high inventory turnover ratio indicate about a company's efficiency?
2. How does the inventory turnover ratio affect cash flow management?
3. What are other methods to calculate average inventory when beginning inventory data is available?
4. How would a change in production materials inventory impact the inventory turnover ratio?
5. How is the inventory turnover ratio different from the accounts receivable turnover ratio?

### Tip:
A low inventory turnover ratio may indicate overstocking or obsolescence, whereas a high ratio could mean strong sales but may also suggest insufficient inventory levels.

The owner of a large machine shop has just finished its financial analysis from the prior fiscal year. Following is an excerpt from the final report:

Net revenue $340,000
Cost of goods sold $301,000
Value of production materials on-hand $42,500
Value of work-in-process inventory $51,000
Value of finished goods on-hand $19,500
Compute the inventory turnover ratio (ITR).

Learn how to compute the inventory turnover ratio (ITR) using the cost of goods sold and average inventory. This problem covers key concepts in financial ratios, including calculating the average inventory using production materials, work-in-process, and finished goods. Suitable for college-level business or finance students.

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