A cafeteria had beginning inventory of $9,000, ending inventory of $7,000, and food cost of $32,000. What is the inventory turnover rate for the period?

A cafeteria had beginning inventory of $9,000, ending inventory of $7,000, and food cost of $32,000. What is the inventory turnover rate for the period?

• A. 3.0 times
• B. 4.0 times
• C. 5.0 times
• D. 2.5 times

Answer: (B)

The main idea is to measure how many times the cafeteria uses and restocks its inventory during the period. This is done by dividing the cost of foods used (food cost) by the average inventory for the period. The average inventory smooths out changes over time: (beginning inventory + ending inventory) ÷ 2 = (9,000 + 7,000) ÷ 2 = 8,000. Then inventory turnover = food cost ÷ average inventory = 32,000 ÷ 8,000 = 4.0 times. So the period’s inventory turnover is 4.0. Using the average inventory rather than just beginning or ending inventory gives a balanced view of how quickly stock is being consumed.

The main idea is to measure how many times the cafeteria uses and restocks its inventory during the period. This is done by dividing the cost of foods used (food cost) by the average inventory for the period. The average inventory smooths out changes over time: (beginning inventory + ending inventory) ÷ 2 = (9,000 + 7,000) ÷ 2 = 8,000. Then inventory turnover = food cost ÷ average inventory = 32,000 ÷ 8,000 = 4.0 times. So the period’s inventory turnover is 4.0. Using the average inventory rather than just beginning or ending inventory gives a balanced view of how quickly stock is being consumed.