If an average inventory is $5,500 and annual purchases are $44,000, what is the inventory turnover?

If an average inventory is $5,500 and annual purchases are $44,000, what is the inventory turnover?

• A. 7
• B. 8
• C. 6
• D. 9

Answer: (B)

Inventory turnover shows how many times, on average, the available inventory is sold and replaced in a year. It’s calculated as Cost of Goods Sold divided by Average Inventory. Here, we have an average inventory of 5,500 and annual purchases of 44,000. When COGS isn’t given, purchases are often used as a stand-in for COGS in a simple calculation, so COGS ≈ 44,000. Divide 44,000 by 5,500 and you get 8. So the inventory turns 8 times per year, meaning the average inventory is sold and replenished about every 1.5 months (12 months / 8). This reflects relatively efficient inventory management.

Inventory turnover shows how many times, on average, the available inventory is sold and replaced in a year. It’s calculated as Cost of Goods Sold divided by Average Inventory. Here, we have an average inventory of 5,500 and annual purchases of 44,000. When COGS isn’t given, purchases are often used as a stand-in for COGS in a simple calculation, so COGS ≈ 44,000. Divide 44,000 by 5,500 and you get 8. So the inventory turns 8 times per year, meaning the average inventory is sold and replenished about every 1.5 months (12 months / 8). This reflects relatively efficient inventory management.