Jim had a beginning inventory of $5,500. During the month of April he purchased $4,000 of food and had an ending inventory of $3,800 at the end of the month. His sales for April were $8,750. What was his inventory turnover?

Jim had a beginning inventory of $5,500. During the month of April he purchased $4,000 of food and had an ending inventory of $3,800 at the end of the month. His sales for April were $8,750. What was his inventory turnover?

• A. 0.8 times
• B. 1.2 times
• C. 2.0 times
• D. 3.0 times

Answer: (B)

Inventory turnover shows how many times you replace your inventory over a period, and it uses cost of goods sold divided by average inventory. First find cost of goods sold: Beginning inventory plus purchases minus ending inventory. 5,500 + 4,000 − 3,800 = 5,700. Next, compute average inventory: (Beginning + Ending) / 2. (5,500 + 3,800) / 2 = 4,650. Now divide COGS by average inventory to get turnover: 5,700 / 4,650 ≈ 1.23, which rounds to 1.2 times. So, the inventory turnover is about 1.2 times. Note that sales aren’t used directly in this calculation; it’s COGS that matters, relative to how much inventory you keep on hand on average. The other values would require much different COGS relative to the average inventory, so 1.2 times is the best fit.

Inventory turnover shows how many times you replace your inventory over a period, and it uses cost of goods sold divided by average inventory.

First find cost of goods sold: Beginning inventory plus purchases minus ending inventory.

5,500 + 4,000 − 3,800 = 5,700.

Next, compute average inventory: (Beginning + Ending) / 2.

(5,500 + 3,800) / 2 = 4,650.

Now divide COGS by average inventory to get turnover:

5,700 / 4,650 ≈ 1.23, which rounds to 1.2 times.

So, the inventory turnover is about 1.2 times. Note that sales aren’t used directly in this calculation; it’s COGS that matters, relative to how much inventory you keep on hand on average. The other values would require much different COGS relative to the average inventory, so 1.2 times is the best fit.