On average, a firm sells $2,500,000 in merchandise a month.Its cost of goods sold equals 80 percent of sales, and it keeps inventory equal to one-half of its monthly cost of goods on hand at all times.If the firm analyzes its accounts using a 360-day year, what is the firm's inventory conversion period?
A)360 days
B)180 days
C)30 days
D)15 days
E)10 days

Question

Quizplus · Accepted Answer

The firm's monthly cost of goods sold is 80% of $2,500,000, which is $2,000,000. The inventory on hand is half of this, $1,000,000. The inventory conversion period is the time it takes to sell this inventory, which is $1,000,000 / $2,000,000 per month = 0.5 months. Converting 0.5 months to days using a 30-day month gives 15 days.

On Average, a Firm Sells $2,500,000 in Merchandise a Month