Question

Thornton Universal Sales' cost of goods sold (COGS) average $2,000,000 per month, and it keeps inventory equal to 50% of its monthly COGS on hand at all times. Using a 365-day year, what is its inventory conversion period

Answer 1

Answer:

Inventory conversion period will be 15.20 days

Explanation:

Cost of goods per month = $2000000

So cost of good for an year = 12 × $2000000 = $24000000

Now it is given that inventory is 50 5 of monthly COGS

So average inventory = 50 % of $2000000 = $1000000

Total days in an year = 365 days

So COGS per day $=\frac{24000000}{365}= 65753.4246$

Now inventory conversion period $=\frac{average\ inventory}{COGS\ per\ day}=\frac{1000000}{65753.4245}=15.20days$

Inventory conversion period will be 15.20 days