Famous Farm's payables deferral period (PDP) is 50 days (on a 365-day basis), accounts payable are $100 million, and its balance sheet shows inventory of $125 million.What is the inventory turnover ratio?
A) 4.73
B) 5.26
C) 5.84
D) 6.42
E) 7.07

Question

Quizplus · Accepted Answer

The inventory turnover ratio is calculated as the cost of goods sold (COGS) divided by average inventory. Given the payables deferral period (PDP) of 50 days, we can estimate COGS as (Accounts Payable / PDP) * 365 = ($100 million / 50) * 365 = $730 million. Then, the inventory turnover ratio is $730 million / $125 million = 5.84.

Famous Farm's Payables Deferral Period (PDP) Is 50 Days (On