Respuesta :
Days in invetory meDays in Inventory measures the average number of days it takes to turn inventory to sales.
To get the days in inventory the formula is :Days in Inventory = 365/Inventory Turnover
To get the Inventory Turnover the formula is : Inventory Turnover Ratio= Cost of Goods/ [(Beginning Inventory Balance + Ending Inventory Balance)/2]
Beginning Inventory Balance: $100Ending Inventory Balance: $500Cost of Goods/Sales: $ 1500
Inventory Turnover Ratio = 1500/ [(100+500)/2]Inventory Turnover Ratio = 1500/300Inventory Turnover Ratio = 5
Days In Inventory = 365/5Days In Inventory = 73
Answer: 73 days
To get the days in inventory the formula is :Days in Inventory = 365/Inventory Turnover
To get the Inventory Turnover the formula is : Inventory Turnover Ratio= Cost of Goods/ [(Beginning Inventory Balance + Ending Inventory Balance)/2]
Beginning Inventory Balance: $100Ending Inventory Balance: $500Cost of Goods/Sales: $ 1500
Inventory Turnover Ratio = 1500/ [(100+500)/2]Inventory Turnover Ratio = 1500/300Inventory Turnover Ratio = 5
Days In Inventory = 365/5Days In Inventory = 73
Answer: 73 days
The inventory in days is 36.5 days
Further Explanation:
Inventory Turnover Ratio: It is an activity ratio which measure of how suitably a company is handling its inventory to generates sales. The inventory turnover ratio is calculated as:
[tex]\text{Inventory Turnover Ratio}=\dfrac{\text{Cost of goods sold}}{\text{Average Inventory}}[/tex]
Calculate the days in inventory:
[tex]\begin{aligned}\text{Days in inventory}&=\dfrac{\text{365}}{\text{Inventory Turnover Ratio}}\\&=\frac{365}{10}\\ &=36.5\text{days}\end{aligned}[/tex]
Therefore, the inventory in days is 36.5 days
Working note 1:
Calculate the cost of goods sold:
[tex]\begin{aligned}\text{Cost of goods sold}&=\text{Sales}-\text{Operating profit}\\ &=\$1,500-\$500\\ &=\$1,000\end{aligned}[/tex]
Working note 2:
Calculate the inventory turnover ratio:
[tex]\begin{aligned}\text{Inventory Turnover Ratio}&=\frac{\text{Cost of goods sold}}{\text{Average Inventory}}\\ &=\frac{\$1000}{\$ 100}\\ &=\$10\end{aligned}[/tex]
Learn more:
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2. the percentage of sales method
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3. the sales budget
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Answer details:
Grade: High School
Subject: Financial Accounting
Chapter: Ratio Analysis
Keywords: A firm has $100 of average inventory, operating profit of $500, sales of $1,500, days in inventory.
