What is the inventory period for a firm with an annual cost of goods sold of $8 million, $1.5 million in average inventory, and a cash conversion cycle of 75 days?

Question

Quizplus · Accepted Answer

Inventory period = (Average inventory / Cost of goods sold) x 365
Cash conversion cycle = Inventory period + Accounts receivable period - Accounts payable period

Given:

Cost of goods sold = $8 million
Average inventory = $1.5 million
Cash conversion cycle = 75 days

Using the formula for the inventory period, we get:

Inventory period = (Average inventory / Cost of goods sold) x 365
Inventory period = ($1.5 million / $8 million) x 365
Inventory period = 68.44 days

Using the formula for the cash conversion cycle, we get:

Cash conversion cycle = Inventory period + Accounts receivable period - Accounts payable period
75 days = 68.44 days + Accounts receivable period - Accounts payable period
Accounts receivable period - Accounts payable period = 6.56 days

Therefore, the answer is D, as the inventory period is 68.44 days.

What Is the Inventory Period for a Firm with an Annual