Sherwood Packing had sales of $3.2 million and a gross profit margin of 35% last year. If Sherwood's inventory averaged $0.4 million last year, what was the length of the inventory conversion period?

Question

Quizplus · Accepted Answer

Inventory conversion period = (Average Inventory ÷ Cost of Goods Sold) x 365

Cost of Goods Sold = Sales x Gross Profit Margin = $3.2 million x 35% = $1.12 million

Inventory conversion period = ($0.4 million ÷ $1.12 million) x 365 = 129.29 ≈ 70.2 days (rounded to one decimal place)

Sherwood Packing Had Sales of $3