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CIA Part 3 study materials
CIA Part 3 study resources

CIA Part 3 practice questions

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Question 1Business Acumen (organizational objectives, behavior, and performance; business processes; managerial and financial accounting concepts)

Which organizational structure groups employees by specialized function, such as marketing, finance, and production?

  1. Functional Correct answer.
  2. Matrix
  3. Network
  4. Divisional by product

Explanation

A functional structure organizes work by specialized areas of expertise, so each department handles a distinct function such as marketing or finance. This design promotes efficiency and technical specialization within each function.

Question 2Business Acumen (organizational objectives, behavior, and performance; business processes; managerial and financial accounting concepts)

In Maslow's hierarchy of needs, which need level comes immediately before esteem needs?

  1. Self-actualization
  2. Safety
  3. Physiological
  4. Social Correct answer.

Explanation

Maslow's hierarchy orders needs as physiological, safety, social, esteem, and self-actualization. Social (belonging) needs therefore immediately precede esteem needs.

Question 3Business Acumen (organizational objectives, behavior, and performance; business processes; managerial and financial accounting concepts)

A cost that remains constant in total within the relevant range but decreases per unit as activity increases is a:

  1. Fixed cost Correct answer.
  2. Step cost
  3. Variable cost
  4. Mixed cost

Explanation

Fixed costs stay constant in total over the relevant range, so as production rises, the fixed cost spread over more units reduces the per-unit amount. Variable costs, by contrast, change in total with activity but remain constant per unit.

Question 4Business Acumen (organizational objectives, behavior, and performance; business processes; managerial and financial accounting concepts)

A budget that starts from zero and requires every cost to be justified is called a:

  1. Rolling budget
  2. Zero-based budget Correct answer.
  3. Incremental budget
  4. Flexible budget

Explanation

Zero-based budgeting begins each period with no assumed baseline and requires managers to justify all proposed expenditures. This contrasts with incremental budgeting, which adjusts prior-period amounts.

Question 5Business Acumen (organizational objectives, behavior, and performance; business processes; managerial and financial accounting concepts)

Which formula gives the break-even point in units?

  1. Total costs ÷ contribution margin per unit
  2. Variable costs ÷ contribution margin per unit
  3. Fixed costs ÷ selling price per unit
  4. Fixed costs ÷ contribution margin per unit Correct answer.

Explanation

Break-even units equal fixed costs divided by the contribution margin per unit, because each unit sold contributes that amount toward covering fixed costs. Once cumulative contribution equals fixed costs, profit is zero.

Question 6Business Acumen (organizational objectives, behavior, and performance; business processes; managerial and financial accounting concepts)

Which quality tool is a diagram used to identify and organize possible causes of a problem into categories such as people, methods, and materials?

  1. Pareto chart
  2. Fishbone diagram Correct answer.
  3. Control chart
  4. Statistical process control chart

Explanation

A fishbone (cause-and-effect) diagram organizes potential causes of a problem into categories, helping teams trace root causes. It is not a statistical chart of frequency or process control.

Question 7Business Acumen (organizational objectives, behavior, and performance; business processes; managerial and financial accounting concepts)

A leader who makes decisions without consulting subordinates and relies on formal authority is best described as:

  1. Democratic
  2. Transformational
  3. Autocratic Correct answer.
  4. Laissez-faire

Explanation

Autocratic leaders centralize decision-making, give little input to subordinates, and rely on positional authority. Democratic and laissez-faire styles involve more participation or delegation.

Question 8Business Acumen (organizational objectives, behavior, and performance; business processes; managerial and financial accounting concepts)

A manager who is responsible for controlling costs but not for generating revenue is in charge of a:

  1. Cost center Correct answer.
  2. Profit center
  3. Revenue center
  4. Investment center

Explanation

A cost center manager is accountable for costs incurred, with no responsibility for revenue or investment decisions. Profit centers include revenue, and investment centers add responsibility for invested assets.

Question 9Business Acumen (organizational objectives, behavior, and performance; business processes; managerial and financial accounting concepts)

A company has total costs of $50,000 at 10,000 units and $70,000 at 15,000 units. Using the high-low method, what is the variable cost per unit?

  1. $2.00
  2. $5.00
  3. $3.33
  4. $4.00 Correct answer.

Explanation

The high-low method divides the change in total cost by the change in activity: ($70,000 - $50,000) ÷ (15,000 - 10,000) = $20,000 ÷ 5,000 = $4.00 per unit. This isolates the variable cost rate before computing the fixed component.

Question 10Business Acumen (organizational objectives, behavior, and performance; business processes; managerial and financial accounting concepts)

Standard direct material cost is $5 per pound and 2 pounds per unit. Actual production was 1,000 units using 2,200 pounds at $4.50 per pound. What is the direct material price variance?

  1. $1,000 favorable
  2. $1,100 favorable Correct answer.
  3. $1,100 unfavorable
  4. $900 unfavorable

Explanation

The material price variance is (actual price - standard price) × actual quantity = ($4.50 - $5.00) × 2,200 = -$1,100, a favorable variance because the actual price was below standard. The quantity used affects the quantity variance, not the price variance.

Question 11Business Acumen (organizational objectives, behavior, and performance; business processes; managerial and financial accounting concepts)

When the selling division has excess capacity and no external market for its product, the most appropriate transfer price from the company's perspective is generally:

  1. Full cost plus markup
  2. Negotiated price
  3. Variable cost Correct answer.
  4. Market price

Explanation

With excess capacity and no external market, the opportunity cost of an internal transfer is zero. Setting the transfer price at variable cost avoids burdening the buying division with an arbitrary profit margin while still covering the incremental cost of production.

Question 12Business Acumen (organizational objectives, behavior, and performance; business processes; managerial and financial accounting concepts)

A company produces two products. Product A uses 20 machine hours and Product B uses 80 machine hours. Total overhead is $50,000, driven by setups: 10 for A and 40 for B at $1,000 per setup. What overhead is assigned to Product B under activity-based costing?

  1. $50,000
  2. $20,000
  3. $10,000
  4. $40,000 Correct answer.

Explanation

Under ABC, overhead is assigned based on the cost driver consumption: Product B uses 40 setups × $1,000 = $40,000. Machine hours would be used only if machine hours were the chosen driver, which the problem replaces with setups.

Question 13Business Acumen (organizational objectives, behavior, and performance; business processes; managerial and financial accounting concepts)

The economic order quantity (EOQ) model primarily balances which two costs?

  1. Purchase costs and stockout costs
  2. Holding costs and depreciation costs
  3. Production costs and setup costs
  4. Ordering costs and carrying costs Correct answer.

Explanation

EOQ minimizes total inventory costs by balancing the cost of placing orders against the cost of holding inventory. At the EOQ, ordering costs and carrying costs are equal.

Question 14Business Acumen (organizational objectives, behavior, and performance; business processes; managerial and financial accounting concepts)

A company has current assets of $300,000 and current liabilities of $150,000. It uses $50,000 cash to pay off short-term payables. What is the new current ratio?

  1. 1.5
  2. 2.5 Correct answer.
  3. 2.0
  4. 3.0

Explanation

After the transaction, current assets become $250,000 and current liabilities become $100,000, so the current ratio is $250,000 ÷ $100,000 = 2.5. Paying a current liability with cash reduces both numerator and denominator.

Question 15Business Acumen (organizational objectives, behavior, and performance; business processes; managerial and financial accounting concepts)

Which balanced scorecard perspective focuses on employee training, skills, and corporate culture?

  1. Financial
  2. Learning and growth Correct answer.
  3. Internal business processes
  4. Customer

Explanation

The learning and growth perspective addresses the intangible infrastructure-employee capabilities, information systems, and organizational climate-needed to support long-term improvement. It is the foundation that enables the other three perspectives.

Question 16Business Acumen (organizational objectives, behavior, and performance; business processes; managerial and financial accounting concepts)

Comparing a company's processes and performance metrics to industry bests or best practices from other companies is called:

  1. Variance analysis
  2. Budgeting
  3. Benchmarking Correct answer.
  4. Reengineering

Explanation

Benchmarking is the systematic process of comparing performance, practices, or processes against recognized leaders to identify improvement opportunities. It differs from budgeting and variance analysis, which are internal planning and control tools.

Question 17Business Acumen (organizational objectives, behavior, and performance; business processes; managerial and financial accounting concepts)

A project costs $100,000 and generates $30,000 annual cash inflow for 5 years. The present value annuity factor for 5 years at 10% is 3.791. What is the net present value?

  1. $50,000
  2. $13,730 Correct answer.
  3. $113,730
  4. -$13,730

Explanation

NPV equals the present value of inflows minus the initial investment: ($30,000 × 3.791) - $100,000 = $113,730 - $100,000 = $13,730. A positive NPV indicates the project earns more than the 10% required return.

Question 18Business Acumen (organizational objectives, behavior, and performance; business processes; managerial and financial accounting concepts)

A key feature of a just-in-time (JIT) production system is:

  1. High setup times to maximize efficiency
  2. Frequent small deliveries from suppliers Correct answer.
  3. Production based on push scheduling
  4. Large inventory buffers to prevent stockouts

Explanation

JIT seeks to minimize inventory by receiving frequent, small deliveries timed to production needs. This reduces carrying costs and exposes quality problems quickly.

Question 19Business Acumen (organizational objectives, behavior, and performance; business processes; managerial and financial accounting concepts)

A wide span of control typically results in:

  1. A flatter structure with fewer layers Correct answer.
  2. Increased centralization of decision making
  3. A taller structure with more management layers
  4. More direct supervision per manager

Explanation

A wide span means each manager supervises more subordinates, reducing the number of management layers needed and producing a flatter organization. Narrow spans, by contrast, create taller hierarchies.

Question 20Business Acumen (organizational objectives, behavior, and performance; business processes; managerial and financial accounting concepts)

Which approach is most likely to reduce employee resistance to a planned organizational change?

  1. Announce the change only after it is fully complete
  2. Implement the change rapidly without any discussion
  3. Communicate rationale and involve staff early Correct answer.
  4. Focus solely on the technical aspects of the change

Explanation

Involving employees early and explaining the reasons for change builds understanding and ownership, which reduces resistance. Participation and communication are core change-management tactics.

Question 21Business Acumen (organizational objectives, behavior, and performance; business processes; managerial and financial accounting concepts)

A company is deciding whether to make or buy a component. Which cost is relevant to this decision?

  1. Depreciation on the factory building allocated to all products
  2. The variable cost of producing the component Correct answer.
  3. The original cost of equipment that will be idle
  4. The salary of a supervisor who will be retained

Explanation

Relevant costs are future costs that differ between alternatives. The variable production cost is avoidable if the component is bought, whereas sunk costs, retained salaries, and allocated depreciation do not differ.

Question 22Business Acumen (organizational objectives, behavior, and performance; business processes; managerial and financial accounting concepts)

Division A makes a component with variable cost of $20 and can sell all it produces externally for $35. Division B wants 1,000 units. Division A has no excess capacity. What minimum transfer price should Division A accept?

  1. $50
  2. $15
  3. $20
  4. $35 Correct answer.

Explanation

With no excess capacity, the selling division loses $15 of contribution margin on each external sale it forgoes. The minimum transfer price is variable cost plus opportunity cost: $20 + ($35 - $20) = $35, equal to the market price.

Question 23Business Acumen (organizational objectives, behavior, and performance; business processes; managerial and financial accounting concepts)

Standard labor is 2 hours per unit at $12 per hour. Actual production was 500 units using 1,050 hours at a total cost of $13,650. What are the labor rate and efficiency variances?

  1. $600 unfavorable; $1,050 unfavorable
  2. $1,050 unfavorable; $600 favorable
  3. $1,050 unfavorable; $600 unfavorable Correct answer.
  4. $1,050 favorable; $600 favorable

Explanation

Actual rate = $13,650 ÷ 1,050 = $13. Rate variance = ($13 - $12) × 1,050 = $1,050 unfavorable. Efficiency variance = (1,050 - 1,000 standard hours) × $12 = $600 unfavorable.

Question 24Business Acumen (organizational objectives, behavior, and performance; business processes; managerial and financial accounting concepts)

A product sells for $50, has variable cost of $30, and fixed costs of $200,000. What sales revenue is needed to earn target operating income of $100,000?

  1. $750,000 Correct answer.
  2. $1,000,000
  3. $500,000
  4. $600,000

Explanation

Contribution margin ratio = ($50 - $30) ÷ $50 = 40%. Required sales = (fixed costs + target income) ÷ CM ratio = ($200,000 + $100,000) ÷ 0.40 = $750,000.

Question 25Business Acumen (organizational objectives, behavior, and performance; business processes; managerial and financial accounting concepts)

An investment center has operating income of $80,000, invested assets of $500,000, and a target return of 12%. What is its residual income?

  1. $60,000
  2. $10,000
  3. $80,000
  4. $20,000 Correct answer.

Explanation

Residual income = operating income - (target return × invested assets) = $80,000 - (0.12 × $500,000) = $80,000 - $60,000 = $20,000. It measures income above the minimum required return.

Question 26Business Acumen (organizational objectives, behavior, and performance; business processes; managerial and financial accounting concepts)

An organization groups employees into departments such as marketing, finance, and production based on specialized expertise. This structure is called:

  1. a functional structure Correct answer.
  2. a product structure
  3. a geographic structure
  4. a matrix structure

Explanation

Functional departmentalization groups work by specialized expertise such as marketing or finance, which promotes efficiency within each specialty. Product and geographic structures group by output or location, while a matrix combines two reporting bases.

Question 27Business Acumen (organizational objectives, behavior, and performance; business processes; managerial and financial accounting concepts)

A manager assumes that employees inherently dislike work and must be coerced or closely supervised to perform. These assumptions align with:

  1. Theory X Correct answer.
  2. equity theory
  3. Theory Y
  4. expectancy theory

Explanation

Theory X assumes workers dislike work and require close supervision and coercion. Theory Y assumes workers are self-motivated, while equity and expectancy theories address fairness perceptions and motivation links.

Question 28Business Acumen (organizational objectives, behavior, and performance; business processes; managerial and financial accounting concepts)

According to Herzberg's two-factor theory, which item is a hygiene factor rather than a motivator?

  1. opportunities for career advancement
  2. salary and working conditions Correct answer.
  3. the work itself
  4. recognition for achievement

Explanation

Hygiene factors such as pay and working conditions can cause dissatisfaction if inadequate but do not motivate higher performance. Recognition, advancement, and the work itself are motivators.

Question 29Business Acumen (organizational objectives, behavior, and performance; business processes; managerial and financial accounting concepts)

Expectancy theory predicts that an employee's motivation is highest when the employee believes that:

  1. effort leads to performance and valued rewards Correct answer.
  2. pay is distributed equally among all employees
  3. hygiene factors have been fully satisfied
  4. the organization has a clear chain of command

Explanation

Expectancy theory combines expectancy (effort leads to performance), instrumentality (performance leads to outcomes), and valence (the outcome is valued). Motivation is highest when all three are strong.

Question 30Business Acumen (organizational objectives, behavior, and performance; business processes; managerial and financial accounting concepts)

In Tuckman's model of team development, during which stage do members typically experience conflict over roles, goals, and leadership?

  1. forming
  2. storming Correct answer.
  3. norming
  4. performing

Explanation

The storming stage is characterized by conflict as members clarify roles and compete for influence. Forming is polite orientation, norming establishes cohesion, and performing focuses on task accomplishment.

Question 31Business Acumen (organizational objectives, behavior, and performance; business processes; managerial and financial accounting concepts)

A highly cohesive project team reaches a quick consensus without critically evaluating alternatives, and members avoid raising dissenting views. This behavior is known as:

  1. social loafing
  2. brainstorming
  3. synergy
  4. groupthink Correct answer.

Explanation

Groupthink occurs when pressure for consensus overrides realistic appraisal of alternatives. Cohesive teams may suppress dissent and fail to consider risks.

Question 32Business Acumen (organizational objectives, behavior, and performance; business processes; managerial and financial accounting concepts)

A defining characteristic of a matrix organization is that employees:

  1. work only in permanent cross-functional teams without functional departments
  2. have dual reporting to functional and project managers Correct answer.
  3. report to only one supervisor
  4. are grouped solely by geographic region

Explanation

A matrix structure combines functional and project reporting, so employees often have two supervisors. This contrasts with a simple chain of command or single-base departmentalization.

Question 33Business Acumen (organizational objectives, behavior, and performance; business processes; managerial and financial accounting concepts)

Which of the following is an advantage of decentralized decision making?

  1. Top management retains full control of decisions
  2. The need for manager training is eliminated
  3. Faster decisions by managers near operations Correct answer.
  4. Policies are applied uniformly across all units

Explanation

Decentralization pushes authority closer to operations, improving speed and responsiveness. It can, however, reduce uniformity and require stronger coordination.

Question 34Business Acumen (organizational objectives, behavior, and performance; business processes; managerial and financial accounting concepts)

Zero-based budgeting requires managers to:

  1. begin with the prior year's budget and add an inflation adjustment
  2. carry forward all existing programs without review
  3. focus only on capital expenditures
  4. justify every expenditure from a zero base each budget period Correct answer.

Explanation

Zero-based budgeting starts each expenditure at zero and requires justification of every activity and cost. Traditional incremental budgeting begins with the prior period's amounts.

Question 35Business Acumen (organizational objectives, behavior, and performance; business processes; managerial and financial accounting concepts)

A primary benefit of participative budgeting is that it:

  1. raises managers' commitment to the budget Correct answer.
  2. guarantees accurate sales forecasts
  3. always eliminates budgetary slack
  4. requires significantly less time than top-down budgeting

Explanation

Participative budgeting involves managers in setting their budgets, which tends to increase acceptance and commitment. It does not guarantee accuracy and may increase slack or take more time.

Question 36Business Acumen (organizational objectives, behavior, and performance; business processes; managerial and financial accounting concepts)

A flexible budget is designed to:

  1. cover only cash receipts and cash disbursements for the period
  2. remain unchanged regardless of actual activity
  3. set spending limits for the entire year
  4. adjust budgeted amounts to the actual activity level Correct answer.

Explanation

A flexible budget is prepared for the actual activity level by applying budgeted variable rates and fixed amounts. It supports meaningful comparison of actual results at the achieved volume.

Question 37Business Acumen (organizational objectives, behavior, and performance; business processes; managerial and financial accounting concepts)

A product sells for $80 and has variable costs of $48 per unit. What is the contribution margin ratio?

  1. 48%
  2. 32%
  3. 40% Correct answer.
  4. 60%

Explanation

Contribution margin ratio equals contribution margin per unit divided by selling price, or ($80 − $48) ÷ $80 = 40%. It measures the portion of each sales dollar available to cover fixed costs and profit.

Question 38Business Acumen (organizational objectives, behavior, and performance; business processes; managerial and financial accounting concepts)

Fixed costs are $120,000, unit selling price is $40, and unit variable cost is $25. What is the break-even point in units?

  1. 4,800 units
  2. 8,000 units Correct answer.
  3. 3,000 units
  4. 5,000 units

Explanation

Break-even units equal fixed costs divided by unit contribution margin: $120,000 ÷ ($40 − $25) = 8,000 units. At that volume, contribution margin exactly covers fixed costs.

Question 39Business Acumen (organizational objectives, behavior, and performance; business processes; managerial and financial accounting concepts)

A company has contribution margin of $300,000 and operating income of $120,000. What is its degree of operating leverage?

  1. 0.40
  2. 2.50 Correct answer.
  3. 3.00
  4. 1.50

Explanation

Degree of operating leverage equals contribution margin divided by operating income: $300,000 ÷ $120,000 = 2.50. It indicates the percentage change in operating income for a given percentage change in sales.

Question 40Business Acumen (organizational objectives, behavior, and performance; business processes; managerial and financial accounting concepts)

A cost that has already been incurred and cannot be changed by any future decision is called a:

  1. opportunity cost
  2. incremental cost
  3. avoidable cost
  4. sunk cost Correct answer.

Explanation

A sunk cost has already been incurred and cannot be affected by a future decision, so it is irrelevant. Opportunity costs and avoidable or incremental costs are relevant because they differ among alternatives.

Question 41Business Acumen (organizational objectives, behavior, and performance; business processes; managerial and financial accounting concepts)

The benefit given up when one alternative is selected over another is called:

  1. a differential cost
  2. a sunk cost
  3. an opportunity cost Correct answer.
  4. an out-of-pocket cost

Explanation

Opportunity cost is the value of the next-best alternative forgone when a choice is made. Sunk costs are past costs, and out-of-pocket costs require future cash outlays.

Question 42Business Acumen (organizational objectives, behavior, and performance; business processes; managerial and financial accounting concepts)

When production exceeds sales during a period, absorption costing net income will be:

  1. equal to variable costing net income
  2. lower than variable costing net income
  3. higher than variable costing income Correct answer.
  4. unrelated to the fixed overhead rate

Explanation

Under absorption costing, fixed manufacturing overhead is inventoried, so when production exceeds sales some fixed overhead is deferred. Variable costing expenses all fixed overhead currently, making absorption income higher in this situation.

Question 43Business Acumen (organizational objectives, behavior, and performance; business processes; managerial and financial accounting concepts)

Which costing system is most appropriate for a manufacturer that produces custom-made furniture to individual customer specifications?

  1. job order costing Correct answer.
  2. process costing
  3. operation costing
  4. backflush costing

Explanation

Job order costing accumulates costs by individual job, which suits customized products made to customer specifications. Process costing is used for continuous mass production of homogeneous items.

Question 44Business Acumen (organizational objectives, behavior, and performance; business processes; managerial and financial accounting concepts)

Inspecting finished goods before shipment to customers is classified as which type of quality cost?

  1. external failure cost
  2. internal failure cost
  3. prevention cost
  4. appraisal cost Correct answer.

Explanation

Appraisal costs are incurred to detect defects before delivery, such as inspection and testing. Prevention costs avoid defects, while internal and external failure costs arise after defects occur.

Question 45Business Acumen (organizational objectives, behavior, and performance; business processes; managerial and financial accounting concepts)

A production process has three sequential operations with maximum capacities of 100, 80, and 120 units per day. What is the maximum daily output of the system?

  1. 300 units
  2. 80 units Correct answer.
  3. 100 units
  4. 120 units

Explanation

The system's output is limited by its bottleneck, the operation with the lowest capacity. Here the 80-unit operation constrains the entire sequential process.

Question 46Business Acumen (organizational objectives, behavior, and performance; business processes; managerial and financial accounting concepts)

Small shifts in consumer demand cause progressively larger fluctuations in orders as one moves up the supply chain. This phenomenon is called the:

  1. network effect
  2. learning curve effect
  3. economies of scale effect
  4. bullwhip effect Correct answer.

Explanation

The bullwhip effect describes demand distortion as orders move upstream, often caused by forecasting updates, batch ordering, and price promotions. It leads to excess inventory and inefficiency.

Question 47Business Acumen (organizational objectives, behavior, and performance; business processes; managerial and financial accounting concepts)

In Porter's value chain, which of the following is a primary activity?

  1. inbound logistics Correct answer.
  2. procurement
  3. human resource management
  4. technology development

Explanation

Primary activities directly create and deliver value, including inbound logistics, operations, outbound logistics, marketing and sales, and service. Procurement, technology development, and human resource management are support activities.

Question 48Business Acumen (organizational objectives, behavior, and performance; business processes; managerial and financial accounting concepts)

In Porter's five forces model, the ease with which new competitors can enter an industry is called the:

  1. threat of substitute products
  2. bargaining power of buyers
  3. threat of new entrants Correct answer.
  4. intensity of rivalry

Explanation

The threat of new entrants reflects how easily competitors can enter the industry, which depends on barriers such as capital, regulation, and scale. The other forces address buyers, substitutes, and existing rivalry.

Question 49Business Acumen (organizational objectives, behavior, and performance; business processes; managerial and financial accounting concepts)

A company finances 60% of its assets with debt costing 6% before tax and 40% with equity costing 14%. The tax rate is 30%. What is the weighted average cost of capital?

  1. 8.00%
  2. 7.40%
  3. 9.20%
  4. 8.12% Correct answer.

Explanation

WACC weights the after-tax cost of debt and the cost of equity: 0.60 × 6% × (1 − 0.30) = 2.52%, plus 0.40 × 14% = 5.60%, totaling 8.12%. The tax shield reduces the effective cost of debt.

Question 50Business Acumen (organizational objectives, behavior, and performance; business processes; managerial and financial accounting concepts)

Cost of goods sold is $600,000 and average inventory is $100,000. What is inventory turnover?

  1. 6.0 times Correct answer.
  2. 7.0 times
  3. 5.0 times
  4. 0.17 times

Explanation

Inventory turnover equals cost of goods sold divided by average inventory: $600,000 ÷ $100,000 = 6.0 times. It measures how many times inventory is sold and replaced during the period.