Thyme,Inc.'s inventory turnover ratio has been approximately 6 times per year over the past few years.This year Thyme decided to reduce the amount of inventory it keeps on hand.What effect will this new policy have on its inventory turnover ratio for the current year?

Question

Quizplus · Accepted Answer

The inventory turnover ratio is calculated by dividing the cost of goods sold by the average inventory. Therefore, reducing the amount of inventory will increase the ratio as the cost of goods sold remains the same. This means that Thyme is selling its inventory faster relative to the amount of inventory it is holding, resulting in a higher turnover ratio.

Thyme,Inc'S Inventory Turnover Ratio Has Been Approximately 6 Times Per