Oakridge Hobby Shop's inventory turned over six times during the year. Similar shops have an inventory turnover equal to twelve times per year.
What explains Oakridge's state of inventory management?
A) Oakridge sold too much inventory during the year.
B) Oakridge is performing twice as well as its competitors.
C) Oakridge needs to increase sales and decrease the amount of goods on hand.
D) Oakridge should increase the amount of goods on hand to accommodate the additional inventory demand.

Question

Quizplus · Accepted Answer

The inventory turnover ratio is calculated as cost of goods sold / average inventory. To increase this ratio to come closer to the industry average, Oakridge needs to increase cost of goods sold by increasing sales and/or decrease the amount invested in inventory.

Oakridge Hobby Shop's Inventory Turned Over Six Times During the Year