A pharmacys annual purchases equal $2,100,000. If the annual average inventory value is $250,000, what is the inventory turnover rate?

Rationale

The inventory turnover rate is 8.4 turns.

The inventory turnover rate is calculated by dividing the annual purchases by the average inventory value. In this case, $2,100,000 divided by $250,000 results in an inventory turnover rate of 8.4 turns, indicating how many times the inventory is sold and replaced over a year.

A (1.5 turns) YOUR ANSWER

This choice inaccurately suggests that the inventory is replaced only 1.5 times in a year. To achieve this, the average inventory value would have to be much higher relative to annual purchases, which is not the case here.

B (12 turns) YOUR ANSWER

Selecting 12 turns implies an inventory turnover rate that suggests the pharmacy sells and replaces its inventory 12 times within the year. This would require a much lower average inventory value than what is given, leading to a miscalculation of the turnover rate.

C (11 turns) YOUR ANSWER

This option indicates a turnover rate of 11 times, which also misrepresents the relationship between annual purchases and average inventory value. It falsely suggests that the pharmacy is operating at a significantly higher turnover than calculated, resulting from an incorrect division of the total purchases by the average inventory.

D (8.4 turns) CORRECT

This choice accurately reflects the inventory turnover calculation, where $2,100,000 in annual purchases divided by an average inventory of $250,000 equals 8.4. This means the pharmacy effectively sells and replenishes its inventory 8.4 times annually, which is a practical and realistic turnover rate.

Conclusion

The inventory turnover rate is a crucial metric for assessing how efficiently a pharmacy manages its inventory. By calculating this figure as 8.4 turns, we understand that the pharmacy effectively cycles through its inventory multiple times in a year, which is important for maintaining optimal stock levels and ensuring product availability. The other options misinterpret the relationship between total purchases and average inventory, highlighting the necessity for accurate calculations in inventory management.

A pharmacys annual purchases equal $2,100,000. If the annual average inventory value is $250,000, what is the inventory turnover rate?

The inventory turnover rate is 8.4 turns.

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