QUESTION 4 What is the number of days of inventory if the en

QUESTION 4 What is the number of days of inventory if the ending average inventory balance is $300,000 and the cost of goods sold is $1,500,000 73 days of inventory 75 days of inventory 60 days of inventory 5 days of inventory

Solution

Question 4

Average inventory = $300,000

Cost of goods sold = $1,500,000

Calculate the inventory turnover ratio -

Inventory turnover ratio = Cost of goods sold/Average inventory = $1,500,000/$300,000 = 5

Calculate the number of days of inventory -

Number of days of inventory = Days in a year/Inventory turnover ratio = 365/5 = 73 days

Hence, the correct answer is the option (a) [73 days of inventory].