Question

a company has an average inventory on hand of $40,000 and its average days in inventory are 26.4 days. what is the cost of goods sold?

Answer 1

The cost of goods sold (COGS) is calculated by multiplying the average inventory by the inventory turnover ratio, which in this case results in COGS being $553,032.

Step-by-step explanation:

The question is asking to determine the cost of goods sold (COGS) given the average inventory on hand and the average days in inventory. To calculate COGS, we can use the formula derived from the inventory turnover ratio, which is COGS divided by average inventory. The formula for inventory turnover ratio is:

Inventory Turnover Ratio = COGS / Average Inventory

Since we are given the average days in inventory, we can find the inventory turnover ratio using this formula:

Inventory Turnover Ratio = 365 days / Average Days in Inventory

Plug in the given average days in inventory:

Inventory Turnover Ratio = 365 days / 26.4 days

Now, to get the COGS, we multiply the average inventory by the inventory turnover ratio:

COGS = Average Inventory × Inventory Turnover Ratio

Using the given average inventory:

COGS = $40,000 × (365 / 26.4)

Now calculate the value:

COGS = $40,000 × 13.8258

COGS = $553,032

This represents the cost of goods sold per year, based on the provided inventory information.