Which of the Following Formulas Would Be Used to Determine

question 103

Multiple Choice

Which of the following formulas would be used to determine the inventory turnover ratio?

• A) Net credit sales/Average inventory
• B) Average inventory/Net credit sales
• C) Cost of goods sold/Average inventory
• D) Average inventory/Cost of goods sold

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Definitions:

Cost Formula

An equation or method used to predict the cost associated with a certain level of activity or production volume.

Contribution Margin

The difference between sales revenue and variable costs of a product or service, highlighting how much contribution towards fixed costs and profit is made per unit sold.

Variable Costs

Costs that vary directly with the level of production or sales volume, such as raw materials and sales commissions.

Gross Margin

Gross margin is a company's net sales revenue minus its cost of goods sold, representing the efficiency with which it can produce and sell its products for a profit.