Which company will have the lower number of days to sell?
A)Company A whose cost of goods sold equals $8,000 and whose average inventory is $500.
B)Company B whose cost of goods sold equals $4,000 and whose average inventory is $200.
C)Company C whose cost of goods sold equals $2,000 and whose average inventory is $200.
D)There is not enough information to answer this question.

Question

Quizplus · Accepted Answer

Inventory turnover ratio = Cost of goods sold ÷ Average inventory
Company A:
= $8,000 ÷ $500 = 16
Company B:
= $4,000 ÷ $200 = 20
Company C:
= $2,000 ÷ $200 = 10
Days to sell = 365 ÷ Inventory turnover ratio
Company A:
= 365 ÷ 16 = 22.8 days
Company B:
= 365 ÷ 20 = 18.3 days
Company C:
= 365 ÷ 10 = 36.5 days

Which Company Will Have the Lower Number of Days to Sell