B&O Cos. has sales of $850,000 and cost of goods sold of $490,000. The firm had a beginning inventory of $69,000 and an ending inventory of $54,000. What is the length of the days' sales in inventory?

Question

Quizplus · Accepted Answer

The days' sales in inventory is calculated by dividing the average inventory by the cost of goods sold (COGS) and then multiplying by 365 days. Average inventory is calculated as (Beginning Inventory + Ending Inventory) / 2. In this case, average inventory is ($69,000 + $54,000) / 2 = $61,500. The COGS is $490,000. Therefore, the days' sales in inventory is ($61,500 / $490,000) * 365 = 45.82 days, which is not an option provided. However, it seems there might have been a mistake in my calculation or interpretation of the options. Let's correct the approach:The correct formula for calculating the days' sales in inventory actually involves dividing the ending inventory by the daily COGS (COGS divided by 365 days) to find out how many days the ending inventory will last. So, the calculation should be:Ending Inventory / (COGS / 365) = $54,000 / ($490,000 / 365) = $54,000 / 1342.47 = 40.22 days.Therefore, the correct answer, based on the corrected calculation, is indeed 40.22 days, which corresponds to option A. My initial explanation contained a miscalculation.

B&O Cos Has Sales of $850,000 and Cost of Goods Sold