Assuming that longer inventory holding periods act to increase expenses,which of the three companies would be expected to have the lowest inventory holding costs?

Question

Quizplus · Accepted Answer

Inventory turnover = Cost of goods sold ÷ Inventory
Average days to sell inventory = 365 ÷ Inventory turnover
Company X:
Inventory turnover = Cost of goods sold ÷ Inventory
$1,980,000 ÷ $175,000 = 11.31 times
Average days to sell inventory = 365 ÷ 11.31 = 32.3 days
Company Y:
Inventory turnover = Cost of goods sold ÷ Inventory
$4,338,000 ÷ $295,000 = 14.71 times
Average days to sell inventory = 365 ÷ 14.71 = 24.8 days
Company Z:
Inventory turnover = Cost of goods sold ÷ Inventory
$3,234,000 ÷ $250,500 = 12.91 times
Average days to sell inventory = 365 ÷ 12.91 = 28.3 days
Company Y,with the lowest number of days to sell inventory,will have the lowest inventory holding cost.

Assuming That Longer Inventory Holding Periods Act to Increase Expenses,which