Syeds Industries has accounts receivable of 700 inventory of

Syed\'s Industries has accounts receivable of $700, inventory of $1,200, sales of $4,200, and cost of goods sold of $3,400. How long does it take Syed\'s to both sell its inventory and then collect the payment on the sale?

Solution

inventory turnover = cost of goods sold / inventory = $3400/$1200 = 2.83

Days Sales in Inventory = 365 / Inventory Turnover = 365 / 2.83 = 128.98

Receivables Turnover = Sales / Accounts Receivable = $4200 / $700 = 6 times Days’ Sales in Receivables = 365 / Receivables Turnover = 365 / 6 = 60.83

Total days in inventory and receivables = 128.98 + 60.83 = 189.81 days = 190 days (rounded)