Acca financial Accounting (FA) Study Text ac ca (FA)

Chapter 20 

KAPLAN PUBLISHING

 

389 

 

Alternative 

 

An alternative is to express the inventory turnover period as a number of 

times: 

Cost of sales

Inventory

 = times pa 

A high turnover indicates that management generally hold quite a low 

level of inventory in comparison to overall sales. This means their costs 

of holding inventory are reduced, although the entity may require more 

frequent deliveries. A just-in-time system would reflect this sort of 

strategy. A low inventory turnover indicates that management hold on to 

a high level of inventory in comparison to overall sales levels.