The inventory turnover ratio is calculated as:
A)Cost of goods sold divided by Sales.
B)Cost of goods sold divided by Average inventory.
C)Ending inventory divided by Cost of goods sold.
D)Average inventory divided by Cost of goods sold.

Question

Quizplus · Accepted Answer

The inventory turnover ratio is calculated by dividing the cost of goods sold by the average inventory. This provides a measure of how often a company's inventory is sold and replaced during a given period. Choice A is incorrect because it divides the cost of goods sold by sales, which does not provide an accurate measure of inventory turnover. Choice C is incorrect because it divides the ending inventory by cost of goods sold, which provides a measure of how much inventory was left over at the end of the period, but does not give a measure of inventory turnover. Choice D is incorrect because it divides the average inventory by cost of goods sold, which does not give an accurate measure of inventory turnover.

The Inventory Turnover Ratio Is Calculated As