Darkhorse Ltd. has a days in inventory ratio of 40 and average inventory of $254,000. What is its cost of goods sold?
A) $1,854,200.
B) $12,700,000.
C) $2,317,750.
D) Cannot be determined.

Question

Quizplus · Accepted Answer

Days in inventory = (365 / inventory turnover)
40 = (365 / inventory turnover)
Inventory turnover = 9.125
Cost of Goods Sold = Average Inventory / Inventory Turnover
Cost of Goods Sold = $254,000 / 9.125 = $27,848.76 (rounded to nearest cent)
Cost of Goods Sold * 365 = $27,848.76 * 365 = $10,169,790.40 (rounded to nearest cent)
Therefore, the closest option is C) $2,317,750.