Dave Murray's Pontiac dealership has an inventory turnover of 5. What does this figure mean?
A) The average value of Dave's inventory is five times his sales.
B) For every $1 Dave spends on inventory, he reaps $5 in sales.
C) Dave's beginning inventory is five times his ending inventory.
D) Dave's average inventory is five times greater than his cost of goods sold.
E) Dave sells and replaces his merchandise five times each year.

Question

Quizplus · Accepted Answer

An inventory turnover of 5 means that Dave sells and replaces his merchandise five times each year. This figure is calculated by dividing the cost of goods sold by the average inventory value during a given period. It is a measure of how efficiently a business is managing its inventory.

Dave Murray's Pontiac Dealership Has an Inventory Turnover of 5