Inventory Turnover Links to Sales Volume

Steps:

• Identify Ramiz's compensation basis: number of cars sold in the showroom.
• Recall accounting ratios: each measures different efficiency or profitability aspects.
• Link to sales performance: ratio reflecting how quickly cars (inventory) move must be relevant.
• Select rate of inventory turnover, as it directly tracks sales speed of showroom stock.

Why C is correct:

• Rate of inventory turnover = Cost of goods sold / Average inventory; it quantifies how often inventory (cars) sells, aligning with Ramiz's pay tied to sales volume.

Why the others are wrong:

• A. Gross margin focuses on profitability (sales minus cost of goods sold), not units sold.
• B. Profit margin measures net income as percentage of sales, emphasizing overall profit, not volume.
• D. Trade receivables turnover assesses collection speed of credit sales, unrelated to physical car sales.

Final answer: C