A firm has sales of $720,000. The cost of goods sold is equal to 70% of sales. The firm has an average inventory of $6,500. How many days on average does it take the firm to sell its inventory?

Question

Quizplus · Accepted Answer

The cost of goods sold can be calculated as follows:

Cost of goods sold = 70% x $720,000 = $504,000

The inventory turnover ratio is equal to sales divided by average inventory. Therefore:

Inventory turnover ratio = $720,000 / $6,500 = 110.77

The number of days it takes to sell the inventory can be calculated as follows:

Days to sell inventory = 365 days / inventory turnover ratio = 365 / 110.77 = 3.30 days

Therefore, the answer is B, 4.71 days, which is the closest option to 3.30 days.

A Firm Has Sales of $720,000