Sandy Shores, Inc.reported the following amounts in its financial statements: $\begin{array}{lrr}
& \underline{2017} & \underline{2016} \
\text { Average merchandise inventory } & \$ 200,000 & \$ 120,000 \
\text { Cost of goods sold } & 4,000,000 & 3,000,000
\end{array}$ From 2016 to 2017, the company's management of inventory is
A) declining, because the number of days' sales in inventory is getting larger.
B) increasing, because the number of days' sales in inventory is getting larger.
C) declining, because the number of days' sales in inventory is getting smaller.
D) increasing, because the number of days' sales in inventory is getting smaller.

Question

Sandy Shores, Inc.reported the following amounts in its financial statements: $\begin{array}{lrr} 
& \underline{2017} & \underline{2016} \
\text { Average merchandise inventory } & \$ 200,000 & \$ 120,000 \
\text { Cost of goods sold } & 4,000,000 & 3,000,000
\end{array}$ From 2016 to 2017, the company's management of inventory is
A) declining, because the number of days' sales in inventory is getting larger.
B) increasing, because the number of days' sales in inventory is getting larger.
C) declining, because the number of days' sales in inventory is getting smaller.
D) increasing, because the number of days' sales in inventory is getting smaller.

Quizplus · Accepted Answer

The number of days' sales in inventory is calculated as (Average Inventory / Cost of Goods Sold) * 365. From 2016 to 2017, the average inventory increased while the cost of goods sold increased proportionally less, leading to a larger number of days' sales in inventory, indicating declining inventory management efficiency.

Sandy Shores, Inc From 2016 to 2017, the Company's Management of Inventory Is