The following information relates to Musk Corporation:

Nventory conversion period 15 days
Average inventory $28,000
Average accounts payable $25,000

What is Musk's cost of goods sold during the year? In your computations, assume there are 360 days in a year.

Question

The following information relates to Musk Corporation:

Nventory conversion period       15 days
Average inventory                      $28,000              
Average accounts payable          $25,000

What is Musk's cost of goods sold during the year? In your computations, assume there are 360 days in a year.

Quizplus · Accepted Answer

First, we need to calculate the inventory turnover ratio:

Inventory turnover ratio = Cost of goods sold / Average inventory

Inventory conversion period = 15 days = 15/360 = 0.0417 year

Inventory turnover ratio = 1 / Inventory conversion period = 1 / 0.0417 = 24

Average inventory = $28,000

Cost of goods sold = Inventory turnover ratio x Average inventory = 24 x $28,000 = $672,000

Therefore, the answer is D, $672,000.

The Following Information Relates to Musk Corporation