If COGS is 400,000 and average inventory is 100,000, ITOR equals?

If COGS is 400,000 and average inventory is 100,000, ITOR equals?

• A. 2.0
• B. 3.0
• C. 4.0
• D. 5.0

Answer: (C)

Inventory turnover shows how many times you can sell and replace your inventory during a period. It is calculated as Cost of Goods Sold divided by Average Inventory. Here, COGS is 400,000 and average inventory is 100,000, so ITOR = 400,000 / 100,000 = 4.0. This means inventory turns four times in the period, indicating relatively rapid movement of stock. Average inventory smooths out seasonal fluctuations and is typically the average of beginning and ending inventory (or another moving average). If turnover were 2.0, the average inventory would be 200,000; if it were 3.0, about 133,333; if it were 5.0, about 80,000.

Inventory turnover shows how many times you can sell and replace your inventory during a period. It is calculated as Cost of Goods Sold divided by Average Inventory. Here, COGS is 400,000 and average inventory is 100,000, so ITOR = 400,000 / 100,000 = 4.0. This means inventory turns four times in the period, indicating relatively rapid movement of stock.

Average inventory smooths out seasonal fluctuations and is typically the average of beginning and ending inventory (or another moving average). If turnover were 2.0, the average inventory would be 200,000; if it were 3.0, about 133,333; if it were 5.0, about 80,000.