If the average inventory value is $37,000 and the annual cost of goods sold is $114,000, what is the turnover rate?

If the average inventory value is $37,000 and the annual cost of goods sold is $114,000, what is the turnover rate?

• A. 1.5
• B. 2.0
• C. 3.08
• D. 4.0

Answer: (C)

To determine the turnover rate, you need to divide the annual cost of goods sold (COGS) by the average inventory value. In this scenario, the average inventory value is $37,000 and the annual COGS is $114,000. The formula for calculating the inventory turnover rate is: Inventory Turnover Rate = Annual COGS / Average Inventory By applying the numbers: Inventory Turnover Rate = $114,000 / $37,000 = 3.08 This result means that the company sells and replaces its inventory approximately 3.08 times per year. A turnover rate of this value indicates efficient inventory management, as it shows that the company is effectively converting its inventory into sales. A higher turnover rate is generally preferred, as it suggests a strong demand for the products relative to inventory levels. In this case, the correct answer reflects an accurate calculation using the provided values, emphasizing the importance of inventory management in assessing a company's operational efficiency.

To determine the turnover rate, you need to divide the annual cost of goods sold (COGS) by the average inventory value. In this scenario, the average inventory value is $37,000 and the annual COGS is $114,000.

The formula for calculating the inventory turnover rate is:

Inventory Turnover Rate = Annual COGS / Average Inventory

By applying the numbers:

Inventory Turnover Rate = $114,000 / $37,000 = 3.08

This result means that the company sells and replaces its inventory approximately 3.08 times per year. A turnover rate of this value indicates efficient inventory management, as it shows that the company is effectively converting its inventory into sales. A higher turnover rate is generally preferred, as it suggests a strong demand for the products relative to inventory levels.

In this case, the correct answer reflects an accurate calculation using the provided values, emphasizing the importance of inventory management in assessing a company's operational efficiency.