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Certified In Logistics, Transportation And Distribution (CLTD) Practice Test

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How is the number of inventory turns calculated?
Correct Answer:
COGS / Avg. Inventory
Explanation:
The number of inventory turns is calculated by dividing the Cost of Goods Sold (COGS) by the average inventory. This metric reflects how efficiently a company manages its inventory by showing how many times the inventory is sold and replaced over a given period, typically a year. A higher number of inventory turns indicates a more efficient inventory management system, as it suggests that the company is selling products quickly, thus minimizing holding costs and reducing the risk of obsolescence. Using COGS in the calculation provides insight into the rate at which a company is able to convert its inventory into sales, emphasizing the effectiveness of inventory utilization. This makes option C the most appropriate answer for calculating inventory turns.

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