Inventory turnover rate is calculated as cost of food sold divided by what?

Inventory turnover rate is calculated as cost of food sold divided by what?

• A. Opening inventory / closing inventory
• B. Average daily cost / days
• C. Purchase order value / number of items
• D. Cost of food sold / average inventory

Answer: (D)

Inventory turnover rate shows how many times you use up and replace your stock during a period. It’s found by taking the cost of food sold in that period and dividing it by the average value of inventory held during the same period. Using the average inventory—typically (beginning inventory + ending inventory) divided by two—helps smooth out fluctuations and reflects stock levels across the whole timeframe, not just at the start or end. If you relied only on opening or closing inventory, the ratio could misrepresent how quickly inventory is being used. This average-based approach gives a clearer picture of purchasing and usage efficiency. For example, if cost of food sold is $90,000 and average inventory is $30,000, the turnover is 3 times; higher turnover means more efficient use of inventory, while lower turnover suggests overstocking or slow movement. The other options don’t fit because they either use inappropriate measures (opening/closing alone, or daily costs divided by days) or rely on purchase order value instead of inventory on hand.

Inventory turnover rate shows how many times you use up and replace your stock during a period. It’s found by taking the cost of food sold in that period and dividing it by the average value of inventory held during the same period. Using the average inventory—typically (beginning inventory + ending inventory) divided by two—helps smooth out fluctuations and reflects stock levels across the whole timeframe, not just at the start or end. If you relied only on opening or closing inventory, the ratio could misrepresent how quickly inventory is being used. This average-based approach gives a clearer picture of purchasing and usage efficiency. For example, if cost of food sold is $90,000 and average inventory is $30,000, the turnover is 3 times; higher turnover means more efficient use of inventory, while lower turnover suggests overstocking or slow movement. The other options don’t fit because they either use inappropriate measures (opening/closing alone, or daily costs divided by days) or rely on purchase order value instead of inventory on hand.