PTCB Certified Pharmacy Technician (PTCE)Order Entry and ProcessingMedium
A pharmacy needs to determine the average inventory turnover rate for its generic medications. Which of the following formulas is used to calculate inventory turnover rate?
- A(Cost of Goods Sold / Average Inventory Value)
- B(Beginning Inventory + Ending Inventory / 2)
- C(Gross Profit / Net Sales)
- D(Sales Revenue / Number of Items Sold)
Show answer & explanationAnswer & explanation
Correct answer: A. (Cost of Goods Sold / Average Inventory Value)
The inventory turnover rate is a measure of how many times inventory is sold or used in a given period. It is calculated by dividing the Cost of Goods Sold (COGS) by the average inventory value. A higher turnover rate generally indicates efficient inventory management.
Why the other options are wrong
- B. Incorrect. This calculates the average inventory value itself, not the turnover rate.
- C. Incorrect. This calculates the gross profit margin, a measure of profitability, not inventory turnover.
- D. Incorrect. This calculates the average selling price per item, not inventory turnover.
Inventory Turnover Rate
A financial ratio that indicates how many times a company's inventory is sold and replaced over a period.
- Formula: Cost of Goods Sold / Average Inventory Value.
- Higher rate suggests efficient inventory management.
- Lower rate may indicate overstocking or slow sales.
- Helps manage cash flow and reduce carrying costs.
Memory trick: Turnover is COGS over Average Stock.