Inventory turnover ratio is COGS divided by average inventory. If COGS = $600,000 and average inventory = $100,000, what is the turnover?

Inventory turnover ratio is COGS divided by average inventory. If COGS = $600,000 and average inventory = $100,000, what is the turnover?

• A. 12.0x
• B. 3.0x
• C. 6.0x
• D. 9.0x

Answer: (C)

Inventory turnover measures how many times the firm sells and replenishes its average inventory during the period. It’s calculated by dividing COGS by average inventory. With COGS of 600,000 and average inventory of 100,000, turnover = 600,000 / 100,000 = 6.0 times. This means the inventory was sold and replaced six times in the period. A higher turnover indicates faster sales and efficient inventory use, though extremely high turnover can signal potential stockouts. For the other figures to occur, the average inventory would have to be different (e.g., 50,000 for 12x, 200,000 for 3x, about 66,667 for 9x), but given the data, the correct turnover is six times.

Inventory turnover measures how many times the firm sells and replenishes its average inventory during the period. It’s calculated by dividing COGS by average inventory. With COGS of 600,000 and average inventory of 100,000, turnover = 600,000 / 100,000 = 6.0 times. This means the inventory was sold and replaced six times in the period. A higher turnover indicates faster sales and efficient inventory use, though extremely high turnover can signal potential stockouts. For the other figures to occur, the average inventory would have to be different (e.g., 50,000 for 12x, 200,000 for 3x, about 66,667 for 9x), but given the data, the correct turnover is six times.