Which metric uses cost of food sold divided by average inventory?

• A. Inventory turnover rate
• B. Average daily food cost
• C. Average inventory
• D. Purchase order cost

Answer: (A)

Inventory turnover rate measures how efficiently you use your food inventory by comparing cost of food sold to the amount of inventory you have on average. The idea is to see how many times your stock is sold and replenished during a period. It’s calculated by taking cost of food sold and dividing it by average inventory, which is typically (beginning inventory plus ending inventory) divided by two. A higher turnover means you’re moving through inventory quickly, which can reduce spoilage and the capital tied up in stock. A lower turnover signals slower sales or excess stock, increasing waste risk and tying up cash.

The other options don’t capture this cycle. Average daily food cost focuses on a daily expense, not how quickly inventory cycles. Average inventory is just the amount on hand on average, not a ratio. Purchase order cost relates to the expense of placing orders, not how often inventory is sold and replaced.