Which of the following is the formula for the inventory turnover?

Question

Options

• AInventory turnover = Cost of Goods Purchased / Average Inventory
• BInventory turnover = Cost of Goods Sold / Average Inventory
• CInventory turnover = Cost of Goods Sold / Total Inventory
• DInventory turnover = Cost of Goods Purchased / Total Inventory

• A
  17% (5)
• B
  73% (22)
• C
  3% (1)
• D
  7% (2)

Explanation

Option B is correct because inventory turnover measures how efficiently a company sells its inventory, and Cost of Goods Sold (COGS) represents the actual cost of inventory sold during the period - making it the right numerator to pair with Average Inventory, which smooths out fluctuations between the beginning and ending inventory balance.

Why the distractors fail:

• A & D use "Cost of Goods Purchased," which measures what was bought, not what was sold - purchases don't reflect sales velocity.
• C uses "Total Inventory" (a single point-in-time figure), which is less accurate than Average Inventory because it ignores how inventory levels shift throughout the period.

Memory tip: Think of inventory turnover as answering "how many times did we sell through our stock?" - you need what was sold (COGS) divided by a representative inventory amount (average), not a snapshot or a purchasing figure.

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