Question

Inventory turnover is calculated as _____. a) cost of merchandise sold divided by inventory b) cost of merchandise sold divided by average inventory c) cost of merchandise sold divided by total assets d) None of these choices are correct.

Answer 1

Answer:

B) cost of merchandise sold divided by average inventory.

Explanation:

Inventory turnover: It is a liquidity ratio that measures the number of times on average a company sold or replaced its inventory during the period. Computed as the cost of goods sold / by the average inventory on hand during the period. Analysts compute average inventory from the beginning and ending inventory balances. The ideal inventory turnover ratio is about 4 to 6, it is a rate at which restock item is well balanced with the sold inventory.