How do you calculate inventory turns for a product?

To calculate inventory turns, the appropriate method involves assessing how often inventory is sold and replaced over a specific period, typically one year. The formula used to determine inventory turnover is the total annual cost of goods sold (COGS) divided by the average inventory for that period.

In the context of the provided multiple-choice options, the choice referencing total annual inventory purchases divided by ending inventory value effectively captures the concept of turnover. This calculation signifies how many times the inventory is converted into sales within the year, illustrating the efficiency of inventory management.

When using total annual purchases in this calculation, it provides insight into how the amount of inventory on hand at any given time (ending inventory) relates to the volume of inventory that is being purchased throughout the year. A higher ratio indicates more efficient inventory management, as it suggests that the business is selling its inventory quickly relative to how much it is purchasing.

The other choices either focus on the wrong relationship between inventory metrics or do not correctly represent the workings of inventory turns. For example, ending inventory value divided by total annual purchases does not accurately reflect the dynamic between sales and re-stocking, while average inventory value divided by total purchases does not address the turnover aspect clearly. Lastly, using ending inventory value with average