We can also look at this ratio using dollars instead of units. Assume your sales for the month are averaging $200,000. This means your annual sales are $200,000 X 12 months = $2,400,000. If you hold $300,000 in inventory on average, how do we calculate the inventory turnover? We use the same basic formula in dollars instead of units. The rules are the same though, the higher the inventory turnover, the better.

Inventory Turnover (In $)

= (Average Monthly Sales in $ X 12) / Average Inventory in $

= Average Annual Sales in $ / Average Inventory in $

1. Calculate your inventory turnover in dollars.

2. Calculate your inventory turnover in dollars if you add $50,000 coins to your inventory and you sell $25,000 more coins per month.

3. Based on your answer, does it make sense to add the additional inventory? Please explain why.

4. Calculate your inventory in dollars if your annual sales were only $700,000 and your inventory was still $300,000. Explain why this scenario is worse than your original scenario.