What is the average inventory level at cost if annual merchandise sales are projected at $310,000 and cost of goods sold at $205,000 with a turnover rate of 2.5?

To determine the average inventory level at cost using the information provided, we utilize the relationship between cost of goods sold (COGS), inventory turnover rate, and average inventory. The formula to find average inventory based on the turnover rate is:

Average Inventory = Cost of Goods Sold / Inventory Turnover Rate

Given the cost of goods sold is $205,000 and the turnover rate is 2.5, we can calculate the average inventory as follows:

Average Inventory = $205,000 / 2.5

Calculating this gives:

Average Inventory = $82,000

This indicates that the average inventory level at cost is $82,000, aligning with the information provided. Understanding the relationship between these metrics is crucial in inventory management and provides insights into how efficiently a business is managing its stock relative to sales. This inventory level can assist in calculating future purchasing needs, optimizing storage costs, and minimizing stockouts or overstock situations.