Question

A company reports the following:

Cost of goods sold	$819,060
Average inventory	96,360

Determine (a) the inventory turnover and (b) the number of days' sales in inventory. Round interim calculations to the nearest dollar and final answers to one decimal place. Assume 365 days a year.

a. Inventory turnover
b. Number of days' sales in inventory	days

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a. Divide cost of goods sold by average inventory.

b. Divide average inventory by average daily cost of goods sold. Average daily cost of goods sold are cost of goods sold divided by 365 days.

Answer 1

Ans. A	Inventory turnover = Cost of goods sold / Average Inventory
	$819,060 / $96,360
	8.5 times
Ans. B	Number of day's sales in inventory = Average inventory / Average daily cost of goods sold
	$96,360 / $2,244
	42.9	days
	*Average daily cost of goods sold = Cost of goods sold / Number of days in year
	$819,060 / 365
	$2,244
	Alternative method:
	Number of day's sales in inventory = Number of days in year / Inventory turnover
	365 / 8.5
	42.9	days