Question

When calculating inventory turns, it is acceptable to use _______________ in the numerator and __________ in the denominator.

Answer 1

Inventory turns is calculated by dividing cost of goods sold (COGS) by average inventory, and it measures how quickly a company sells and replaces its inventory. COGS should be used in the numerator and average inventory in the denominator.

Step-by-step explanation:

When calculating inventory turns, it is acceptable to use cost of goods sold (COGS) in the numerator and average inventory in the denominator.

Inventory turns, also known as inventory turnover, measures how quickly a company sells its inventory and replaces it over a certain period of time. It is calculated by dividing COGS by average inventory.

For example, if a company has a COGS of $500,000 and an average inventory of $100,000, the inventory turns would be 5 ($500,000 / $100,000). This means the company sells and replaces its inventory 5 times a year on average.