Answer:
the average inventory divided by the average daily cost of merchandise sold.
Explanation:
In Business, an inventory is a term used to describe a list of finished goods, goods still in the production line and raw materials that would be used for the manufacturing of more goods in a bid to meet the unending consumer demands.
Simply stated, an inventory can be classified into three (3) main categories; finished goods, work in progress, and raw materials.
An inventory is recorded as a current asset on the balance sheet because it's primarily the most important source of revenue for a business entity.
Also, the three (3) main cost concept associated with an inventory are;
1. First In First Out (FIFO).
2. Last In First Out (LIFO).
3. Weighted average cost.
The number of days' sales in inventory is calculated as the average inventory divided by the average daily cost of merchandise sold.
Also, the period of time it takes to receive a supply (goods), sell to consumers, and replace the inventory is the number of days' sales in inventory.
A moderate inventory ensures business do not run out of goods to meet customer's demand.
However, having too much inventory poses the threat of having obsolete goods, increased storage costs, and sometimes spoilage of these goods.
