Question

Calculate the inventory-to-sale conversion period based on the following information: average inventories = $110,000; average receivables = $90,000; average payables = $40,000; cost of goods sold = $173,000; and net sales = $365,000.

Answer 1

The inventory-to-sale conversion period is calculated by dividing the average inventories by the cost of goods sold, then multiplying by 365 days. In this case, it takes approximately 232 days to convert inventory into sales.

Step-by-step explanation:

Inventory-to-Sale Conversion Period Calculation

To calculate the inventory-to-sale conversion period, we need to determine how long it takes for inventory to be sold and turned into sales. The formula used is:

Inventory Conversion Period = (Average Inventories / Cost of Goods Sold) × 365 days

Given the average inventories of $110,000 and a cost of goods sold (COGS) of $173,000, the calculation is as follows:

Inventory Conversion Period = ($110,000 / $173,000) × 365 = 0.635838150289 × 365 ≈ 232.11 days

This means it takes approximately 232 days for the company to convert its inventory into sales.

Answer 2

232.08 days

Step-by-step explanation:

Inventory to sales conversion period is the average length of time it will take a business to sell its stock items and then replace them. It give s an indication of patronage from customers and the shorter the better.

It is determined as follows:

Average inventory period

= (Average inventory/cost of goods sold) × 365 days

= (110,000/173,000) × 365 days

= 232.08 days

It takes on the average 232.08 days to sell and replace stock