CPIM Practice Exam

What is the primary use of inventory turnover?

1. To assess the profitability of a product

2. To measure efficiency in managing inventory

3. To estimate future production levels

4. To evaluate customer satisfaction

The correct answer is: To measure efficiency in managing inventory

Inventory turnover is primarily used to measure efficiency in managing inventory. This metric indicates how many times inventory is sold and replaced over a specific period, providing valuable insight into how effectively a company is utilizing its inventory. A higher inventory turnover ratio suggests that a company is selling goods quickly and efficiently, which can indicate strong sales performance and effective inventory management practices. In contrast, assessing the profitability of a product focuses on understanding the financial returns associated with that product, which is a different financial analysis metric. Estimating future production levels involves forecasting based on various factors such as market demand and historical sales data, rather than analyzing past inventory performance. Evaluating customer satisfaction typically relies on customer feedback and service metrics rather than inventory turnover data. Thus, the primary focus of inventory turnover is indeed on the efficiency of inventory management.