Question

A company reports the following: Cost of goods sold $435,000Average inventory 72,500 Determine (a) the inventory turnover and (b) the number of days' sales in inventory. Round interim calculations to the nearest dollar and final answers to one decimal place. Assume 365 days a year.

Answer 1

Answer:

(a) 6

(b) 60.8 days

Explanation:

Given that,

Cost of goods sold = $435,000

Average inventory = 72,500

Therefore,

(a) Inventory turnover ratio:

= Cost of goods sold ÷ Average inventory

= $435,000 ÷ 72,500

= 6

Therefore, the inventory turnover ratio is 6.

(b) Number of days' sales in inventory:

= 365 days ÷ Inventory turnover ratio

= 365 days ÷ 6

= 60.8 days

Therefore, the number of days sales in inventory is 60.8 days.