CAIE A-Level Business A2 Formula Reference Financial Efficiency Ratios Topic Practice

Refer to Appendix 1. Calculate CQ's rate of inventory turnover.

Responses may include:

Inventory turnover = cost of sales / average inventory and/or

Cost of sales = revenue - gross profit (1 mark if no relevant calculation)

Cost of sales $=1.2-0.8=\$ 0.4 \mathrm{~m}$ (1)

Inventory turnover =0.4 / 0.13(2)

Inventory turnover = 3.077 OR 3.08 OR 3.1 OR 3 times (3)

Incorrect unit for final answer e.g. $3.077 OR 3.077\% OR 3.077 days (2)

If expressed in days then:

Inventory turnover = average inventory / cost of sales X 365 (1 mark if no relevant calculation)

Inventory turnover $=0.13 / 0.4 \times 365(2)$

=118.6 days OR 119 days ( 3 )

If correct equation stated but then calculation shows 1.2 / 0.13 = 9.23 (2)

Accept all valid responses.