The inventory turnover ratio is calculated by dividing
A)cost of goods sold by the ending inventory.
B)cost of goods sold by the beginning inventory.
C)cost of goods sold by the average inventory.
D)average inventory by cost of goods sold.

Question

Quizplus · Accepted Answer

The inventory turnover ratio is computed by dividing the cost of goods sold by the average inventory. This measures the efficiency of the company's inventory management by determining how many times the average inventory is sold and restocked over a given period. Option A and B are incorrect because they use only the ending or beginning inventory, which may not reflect the inventory fluctuations throughout the year. Option D is also incorrect because it reverses the numerator and denominator, which does not yield the inventory turnover ratio.

The Inventory Turnover Ratio Is Calculated by Dividing