Question

The company that is most likely to have lost sales due to an inventory shortage is
a.company c, which has an inventory turnover of 14.6.
b.company b, which has an average days in inventory of 23.8 days.
c.company d, which has an average days in inventory of 19.4 days.
d.company a, which has an inventory turnover of 28.9.

Answer 1

Choice (d) is correct. Inventory turnover is different from average days in inventory. Inventory turnover is a measure of how many times the inventory "turns" or sold during a period while average days in inventory is a measure how many days does inventory stays in the company's premises before it is sold. So, the higher turnover ratio means the company has the higher risk of shortage if improperly managed.