CPIM Practice Exam

What does inventory turnover measure?

1. The total sales value of all inventory

2. The rate at which inventory is sold and replaced over a period

3. The average value of inventory held in stock

4. The effectiveness of inventory purchasing strategy

The correct answer is: The rate at which inventory is sold and replaced over a period

Inventory turnover is a crucial metric that indicates the rate at which inventory is sold and replaced over a specified period. A high inventory turnover rate suggests that a company is effectively managing its inventory, selling products quickly and replenishing stock efficiently. This metric reflects both the sales performance and the efficiency of inventory management practices. By analyzing inventory turnover, businesses can gain insights into their sales effectiveness, production efficiency, and the overall health of their inventory management strategies. When inventory turns over frequently, it often signifies strong sales and effective inventory management, while lower turnover can indicate excess stock or weak sales. The other options do not directly capture the essence of inventory turnover. The total sales value of all inventory reflects financial metrics rather than the rate of turnover. The average value of inventory held provides insight into stock levels but does not indicate how often inventory is sold. Lastly, the effectiveness of inventory purchasing strategy, while important, does not directly translate to the turnover of inventory itself. Thus, option B accurately represents what inventory turnover measures.