Question

Selected information from the accounting records of Ellison Manufacturing Company follows:

Net sales ............................................ P3,600,000
Cost of goods sold ................................... 2,400,000
Inventories at January 1 ............................. 672,000
Inventories at December 31 ........................... 576,000
What is the number of days' sales in average inventories for the year?
a. 102.2
b. 94.9
c. 87.6
d. 68.1

Answer 1

b. 94.9

Step-by-step explanation:

The computation of the number of days' sales in average inventories is shown below:

Day inventory outstanding = (Beginning inventory + ending inventory) ÷ 2 ÷ cost of goods sold × total number of days in a year

= ($672,000 + $576,000) ÷ 2 ÷ $2,400,000 × 365 days

= ($624,000 ÷ $2,400,000 ) × 365 days

= 94.90 days

Simply we take the average of inventory and divide from the costs of goods sold

All other information which is given is not relevant. Hence, ignored it