The inventory conversion period of a firm is equivalent to the average age of its inventory.

Question

Quizplus · Accepted Answer

The inventory conversion period represents the number of days it takes for a firm to convert its inventory into sales. It can be calculated by dividing the average inventory by the cost of goods sold per day. The inventory turnover ratio is the number of times inventory is sold or used during a specific period, and it is equal to the cost of goods sold divided by the average inventory. On the other hand, the average age of inventory is a measure of the number of days inventory is held before being sold, which is equivalent to the inventory conversion period. Therefore, the statement is true.

The Inventory Conversion Period of a Firm Is Equivalent to the Average