Question

Compute the average days in inventory ratio using the following information: Net sales is $200,000 for the year, cost of goods sold are $80,000, last year's total assets were $900,000, and this year's total assets are $1,100,000. Receivables for both years are $40,000. Inventory changed from $30,000 last year to $10,000 this year.

Answer 1

91.25 days

Step-by-step explanation:

The computation of the average days in inventory ratio is shown below:

Average days in inventory is

= Total number of days in a year ÷ inventory turnover ratio

where,

Inventory turnover is

= Cost of goods sold ÷ average inventory

= $80,000 ÷ [($30,000 + $10,000) ÷ 2]

= 4

And, the total number of days in a year is 365 days

So, the average days in inventory is

= 365 ÷ 4

= 91.25 days

We simply applied the above formula