a)Why is it advantageous to have a high inventory turnover?
b)Is it possible for the inventory turnover to be too high? Discuss.
c)Is it possible to have a high inventory turnover and a high number of days’ sales inventory? Discuss.

a.         A high inventory turnover minimizes the amount invested in inventories, thus freeing funds for more advantageous use. Storage costs, administrative expenses, and losses caused by obsolescence and adverse changes in prices are also kept to a minimum.

b.         Yes. The inventory turnover could be high because the quantity of inventory on hand is very low. This condition might result in the lack of sufficient goods on hand to meet sales orders.

c.         Yes. The inventory turnover relates to the “turnover” of inventory during the year, while the number of days’ sales in inventory relates to the amount of inventory on hand at the beginning and end of the year. Therefore, a business could have a high inventory turnover during the year, yet have a high number of days’ sales in inventory based on the beginning and end-of-year inventory amounts.