Given that longer inventory holding periods act to increase expenses, which of the three companies would be expected to have the highest inventory holding cost?
A)All three companies have equal holding costs
B)Company Z
C)Company Y
D)Company X

Question

Quizplus · Accepted Answer

Company X inventory turnover = $3,960,000/$324,000 = 12.22 times; Avg. days in inventory = 365/12.22 = 29.9 days
Company Y inventory turnover = $8,662,500/$567,000 = 15.28 times; Avg. days in inventory = 365/15.28 = 23.89 days
Company Y inventory turnover = $6,468,000/$453,600 = 14.26 times; Avg. days in inventory = 365/14.26 = 25.6 days
Company X, with the highest number of days in inventory, will have the highest inventory holding cost.

Given That Longer Inventory Holding Periods Act to Increase Expenses