Tellus and Rojers Corp. are close competitors. Last year, both had the same level of cost of goods sold, but Tellus turned its inventory over ﬁve times during the year while Rojers Corp. turned its
Inventory over every 65 days. If the objective is to keep inventory as low as possible (on average),
Which of the following is true?
A) Tellus did a better job since its inventory turnover was lower.
B) Rojers Corp, did a better job since its days' sales in inventory was lower.
C) Tellus a better job since its days' sales in inventory was lower.
D) Rojers Corp. did a better job since its inventory turnover was lower.
E) Tellus did a better job since its level of inventory was lower.

Question

Quizplus · Accepted Answer

Inventory turnover and days' sales in inventory are two different measures of inventory management. A higher inventory turnover means a company is selling and replenishing its inventory at a faster rate, which can lead to lower inventory carrying costs. On the other hand, a lower days' sales in inventory means that a company has less inventory on hand relative to its sales volume, which can also result in lower inventory carrying costs. In this case, Rojers Corp. had a lower days' sales in inventory (65 days) compared to Tellus (365/5 = 73 days), indicating that Rojers Corp. was able to maintain a lower level of inventory without negatively impacting its sales or customer demand. Therefore, Rojers Corp. did a better job of managing its inventory if the objective is to keep inventory as low as possible.