What is the formula for determining inventory turnover?

The correct answer is derived from the concept of inventory turnover, a key performance metric used to assess how effectively inventory is managed within a business. The formula for determining inventory turnover is calculated by taking the cost of goods sold (COGS) and dividing it by the average inventory during a specific period.

Using the cost of goods sold in the formula allows for a clear indication of how many times inventory is sold and replaced over a set timeframe. This metric is crucial in the funeral service industry, as it helps funeral homes understand their inventory management effectiveness, ensuring that goods such as caskets, urns, and other funeral supplies move efficiently through their system.

In contrast, other options do not accurately represent the inventory turnover formula. Average inventory divided by sales revenue would not provide a measure of turnover; rather, it would skew the understanding of how quickly inventory is being utilized. Total sales minus total expenses focuses on profitability rather than inventory efficiency. Current assets divided by total liabilities assesses financial stability, not inventory management.

Understanding this metric helps funeral home operators optimize inventory levels, improve cash flow, and minimize holding costs while ensuring they can meet client needs promptly.