Swanson Company had inventory of $220,000 and $180,000 on December 31, 2012, and December 31, 2011, respectively. Cost of goods sold for 2012 was $1,800,000. Average days in inventory is approximately:
A) 36.5.
B) 9.
C) 40.6.
D) 10.

Question

Quizplus · Accepted Answer

The formula for average days in inventory is (Ending Inventory / Cost of goods sold) x 365.

To find the ending inventory, we use the inventory turnover ratio:

Inventory turnover ratio = Cost of goods sold / Average inventory

For 2012: 
Inventory turnover ratio = $1,800,000 / (($220,000 + $180,000)/2)) 
= $1,800,000 / $200,000 
= 9 times

So, the ending inventory for 2012 would be: 
Ending inventory = $220,000 / 9 
= $24,444

Therefore, the average days in inventory would be: 
(Ending inventory / Cost of goods sold) x 365 = ($24,444 / $1,800,000) x 365 
= 4.93 days ≈ 40.6 days (rounded to one decimal place)

Therefore, the best choice is C.

Swanson Company Had Inventory of $220,000 and $180,000 on December