A company began the year with $150,000 in inventory and ended the year with $170,000 in inventory.Cost of goods sold for the year amounted to $960,000.Assuming 360 days in a year, how long, on average, does it take the company to sell its inventory (to the nearest day)?
A) 3 days
B) 60 days
C) 6 days
D) 120 days

Question

Quizplus · Accepted Answer

To find the average number of days it takes for the company to sell its inventory, we can use the following formula:

Inventory turnover ratio = Cost of goods sold / Average inventory

We can rearrange this formula to solve for the average inventory:

Average inventory = Cost of goods sold / Inventory turnover ratio

We know that the cost of goods sold for the year was $960,000. To find the inventory turnover ratio, we need to divide the cost of goods sold by the average inventory:

Inventory turnover ratio = Cost of goods sold / Average inventory

Inventory turnover ratio = $960,000 / (($150,000 + $170,000) / 2)

Inventory turnover ratio = $960,000 / $160,000

Inventory turnover ratio = 6

This means that the company sold its entire inventory 6 times during the year. To find the number of days it takes to sell the inventory once, we can divide the number of days in the year by the inventory turnover ratio:

Number of days to sell inventory = 360 / Inventory turnover ratio

Number of days to sell inventory = 360 / 6

Number of days to sell inventory = 60

Therefore, it takes the company an average of 60 days to sell its inventory. The best choice is B.

A Company Began the Year with $150,000 in Inventory and Ended