Question

Refer to the following selected financial information from McCormik, LLC. Compute the company's days' sales in inventory for Year 2. (Use 365 days a year.)
Year 2 Year 1
Cash $39,100 $33,850
Short-term investments 106,000 68,000
Accounts receivable, net 93,500 87,500
Merchandise inventory 129,000 133,000
Prepaid expenses 13,700 11,300
Plant assets 396,000 346,000
Accounts payable 105,400 115,800
Net sales 719,000 684,000
Cost of goods sold 398,000 383,000
a) 53.8.
b) 85.7.
c) 47.5.
d) 45.9.
e) 118.3.

Answer 1

Answer:

e) 118.3.

Explanation:

days' sales in inventory = (average inventory x 365 days) / cost of goods sold year 2

• cost of goods sold year 2 =  $398,000
• inventory year 2 = $129,000

days' sales in inventory = ($129,000 x 365 days) / $398,000 = 118.30 days

Days' sales in inventory measures how much time it takes on average for a company to sell its inventory.