Question

Scherzer Department Store had net credit sales of $25,000,000 and cost of goods sold of $15,000,000 for the year. The average inventory for the year was $2,500,000. Given this, average number of days in inventory for the year was closest to Select one: a. 61 days. b. 73 days. c. 10 days. d. 6 days. e. 37 days.

Answer 1

d. 6 days

Step-by-step explanation:

Average number of days in inventory is an efficiency ratio. It measures the average number of days an entity will holds its stock/inventory before such inventory is sold.

It is given as the ratio of the number of days in the period to the inventory turnover. Inventory turnover is the ratio of cost of goods sold to average inventory.

Hence, average number of days in inventory for the year

= 365/($15,000,000/$2,500,00)

= 365/60

= 6.08 days