Question

Anthony Thomas Candies (ATC) reported the following financial data for 2021 and 2020:

2021 2020
Sales $ 314,000 $ 290,000
Sales returns and allowances 8,000 4,700
Net sales $ 306,000 $ 285,300
Cost of goods sold:
Inventory, January 1 62,000 18,000
Net purchases 139,000 142,000
Goods available for sale 201,000 160,000
Inventory, December 31 61,000 62,000
Cost of goods sold 140,000 98,000
Gross profit $ 166,000 $ 187,300
The average days inventory for ATC (rounded) for 2021 is: (Round your intermediate calculations to two decimal places. Round your final answer to the nearest whole number.)
A. 171 days.
B. 222 days.
C. 231 days
D. Less than 100 days.

Answer 1

D. Less than 100 days

Step-by-step explanation:

Average days inventory = 365 / Inventory turnover rate

But

Inventory turnover rate = Cost of goods sold / Average inventory

Also,

Average inventory = (Beginning inventory + Ending inventory) / 2

= ($62,000 + $18,000) / 2

= $40,000

Inventory turnover rate = $201,000 / $40,000 = 5.025

Average days inventory = 365 / 5.025 = 72.64 days