Practice Quiz

Supply Chain Management

Category - Inventory

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What is the formula of a Gross Margin Return on Investment (GMROI)?
  1. Gross margin/total inventory cost.
  2. Gross margin/average inventory cost.
  3. Total Inventory + average inventory/gross margin.
  4. All of the above formulas.
Explanation
Answer: B - Gross margin return on investment is calculated by dividing the gross margin by the average inventory cost. Both inventory turnover and GMROI are measures of the productivity of on-hand inventory, so the sales made from non on-hand inventory (such as special orders) need to be exempted from the calculation.
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