CPIM Practice Exam

What is this year’s inventory turnover based on last year's inventory of $5,000,000 and this year's inventory of $4,000,000 with COGS of $2,300,000?

1. 0.511 times

2. 0.575 times

3. 0.589 times

4. 1.957 times

The correct answer is: 0.511 times

To calculate the inventory turnover ratio, you use the formula: Inventory Turnover = Cost of Goods Sold (COGS) / Average Inventory First, you need to determine the average inventory. With last year's inventory at $5,000,000 and this year's inventory at $4,000,000, the average inventory can be calculated as follows: Average Inventory = (Last Year's Inventory + This Year's Inventory) / 2 Average Inventory = ($5,000,000 + $4,000,000) / 2 = $4,500,000 Next, you can substitute the values into the inventory turnover formula: Inventory Turnover = COGS / Average Inventory Inventory Turnover = $2,300,000 / $4,500,000 = 0.5111 (approximately 0.511) Rounding this value provides an inventory turnover of 0.511 times, which aligns with the correct answer given. This result reflects how many times the inventory is sold and replaced over a specific period, providing insight into inventory management efficiency. A low turnover ratio could indicate overstocking or inefficiencies in sales, while a high ratio may suggest strong sales or inadequate inventory levels.