Question

How is the days' sales in inventory calculated?

1) 365 days multiplied by inventory
2) 365 days divided by inventory
3) 365 days added to inventory
4) 365 days subtracted from inventory

Answer 1

The days' sales in inventory is calculated by dividing the number of days in a year (365) by the inventory turnover ratio. The inventory turnover ratio is calculated by dividing the cost of goods sold by the average inventory.

Step-by-step explanation:

The days' sales in inventory is calculated by dividing the number of days in a year (365) by the inventory turnover ratio. The inventory turnover ratio is calculated by dividing the cost of goods sold by the average inventory.

Mathematically, it can be expressed as:
Days' Sales in Inventory = 365 / Inventory turnover ratio

For example, if the inventory turnover ratio is 4, the days' sales in inventory would be 365 / 4 = 91.25 days.