Practice Quiz

Supply Chain Management

Category - Inventory

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How is inventory turnover ratio calculated?
  1. By dividing the cost of goods sold by the average inventory.
  2. By multiplying the beginning and ending inventory, then dividing by 4.
  3. Both by A and B.
  4. It cannot be calculated
Explanation
Answer: A - The inventory turnover ratio is calculated by simply dividing the cost of goods sold by the average inventory. If the cost of goods sold is equal to $60,000 and the average inventory is equal to $65,000, the inventory turnover ratio will be equal to 92.3 percent (60000 / 65000 = 92.3%).
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