The inventory turnover ratio is calculated as:
A)Cost of goods sold divided by ending inventory times 365.
B)Sales divided by cost of goods sold.
C)Ending inventory divided by cost of goods sold.
D)Cost of goods sold divided by ending inventory.
E)Cost of goods sold divided by average merchandise inventory.

Question

Quizplus · Accepted Answer

The inventory turnover ratio is calculated by dividing the cost of goods sold by the average merchandise inventory. This ratio measures how many times a company has sold and replaced its inventory during a particular period. The higher the turnover ratio, the more efficient a company is at managing its inventory. Choice E represents this calculation.

The Inventory Turnover Ratio Is Calculated As