The inventory turnover ratio is computed by dividing cost of goods sold by
A) beginning inventory.
B) ending inventory.
C) average inventory.
D) 365 days.

Question

Quizplus · Accepted Answer

The inventory turnover ratio measures how quickly a company's inventory is sold and replenished. To calculate the ratio, we need to divide the cost of goods sold by the average inventory. This is because the ratio should reflect the company's performance over the entire period, and using the average inventory gives a more accurate picture than using only the beginning or ending inventory numbers. Therefore, choice C is the best option.

The Inventory Turnover Ratio Is Computed by Dividing Cost of Goods