Based on the West Coast Golf Club data (Sales $196,000; Cost of goods sold $140,000; Average inventory $56,000; Rounds of play 20,000), what was the turnover rate for the year?

Based on the West Coast Golf Club data (Sales $196,000; Cost of goods sold $140,000; Average inventory $56,000; Rounds of play 20,000), what was the turnover rate for the year?

• A. 3
• B. 4
• C. 2
• D. 5

Answer: (C)

Inventory turnover shows how many times a business sells through its inventory in a year. It’s found by dividing cost of goods sold by the average inventory. Here, cost of goods sold is 140,000 and average inventory is 56,000, so turnover = 140,000 / 56,000 = 2.5 times. The rounding approach used in this item appears to truncate the decimal, giving 2 as the reported turnover. So the turnover rate is about 2 times for the year. This means the golf club’s inventory cycled roughly every half to three-quarters of a year. (Using sales instead of COGS would give about 3.5, which isn’t the standard turnover figure.)

Inventory turnover shows how many times a business sells through its inventory in a year. It’s found by dividing cost of goods sold by the average inventory.

Here, cost of goods sold is 140,000 and average inventory is 56,000, so turnover = 140,000 / 56,000 = 2.5 times. The rounding approach used in this item appears to truncate the decimal, giving 2 as the reported turnover. So the turnover rate is about 2 times for the year.

This means the golf club’s inventory cycled roughly every half to three-quarters of a year. (Using sales instead of COGS would give about 3.5, which isn’t the standard turnover figure.)