Question

Based on the following information, what is (1) inventory turnover; (2) average daily cost of goods sold using a 365 day year; and (3) number of days’ sales in inventory. ​ Cost of goods sold $195,640 Inventory: Beginning of year 20,500 End of year 18,628

Answer 1

1. inventory turnover: 10 times

2. Average daily cost of goods sold: $536 per day

3. Number of days’ sales in inventory: 36.5 days

Step-by-step explanation:

Inventory turnover ratio an efficiency ratio that indicates how many times a company sells and replaces its stock of goods during a particular period

Inventory turnover ratio is calculated by using following formula:

Inventory turnover ratio = Cost of Goods Sold/Average Inventory

In there:

Average Inventory = (Inventory beginning of year + Inventory end of year )/2

In the company:

Average Inventory = (20,500 + 18,628)/2 = $19,564

Inventory turnover = $195,640/$19,564 = 10 times

Average daily cost of goods sold = $195,640/365 = $536 per day

Number of days’ sales in inventory = (1/10)x365 = 36.5 days