If a firm has annual sales of $600,000, a gross profit margin of 40% and an average inventory balance of $60,000, the firm's inventory period is 60 days (two months).

Question

Quizplus · Accepted Answer

Inventory period = (average inventory balance / cost of sales) x 365 days
Cost of sales = Annual sales x (100% - Gross profit margin)
Cost of sales = $600,000 x (100% - 40%) = $360,000
Inventory period = ($60,000 / $360,000) x 365 days = 60 days

If a Firm Has Annual Sales of $600,000, a Gross