Which of the following formulas is used to calculate the inventory turnover ratio?
A) Cost of Goods Sold / Ending Inventory
B) Sales / Beginning Inventory
C) Cost of Goods Sold / Average Inventory
D) Sales / Total Inventory

Question

Quizplus · Accepted Answer

The formula for inventory turnover ratio is Cost of Goods Sold / Average Inventory. This formula takes into account the average inventory level during a period, rather than just the ending inventory or beginning inventory. Option A takes into account only the ending inventory, which may not be representative of the average inventory level during the period. Option B uses beginning inventory, which also may not reflect the average inventory level during the period. Option D uses total inventory, which is not relevant for calculating inventory turnover ratio.

Which of the Following Formulas Is Used to Calculate the Inventory