Which of the following statements is correct concerning the Days' sales in raw materials inventory?
A) Most companies generally prefer a higher number of days' sales in raw materials inventory.
B) A measure of how long it takes raw materials to be used in production.
C) Reveals how many times a company turns over its raw materials inventory in a period.
D) The ratio is not useful for a manufacturer.
E) Is calculated by taking the Raw materials used/Average raw materials inventory.

Question

Quizplus · Accepted Answer

The Days' sales in raw materials inventory is a measure of how long it takes raw materials to be used in production. This ratio indicates the efficiency of a company in managing its raw materials inventory. Typically, companies aim to have a lower number of days' sales in raw materials inventory, as it indicates a faster turnover of inventory and better management of working capital. Option A is incorrect as most companies prefer a lower number of days' sales in raw materials inventory. Option C is incorrect as inventory turnover ratio is used to determine how many times a company turns over its inventory in a period. Option D is incorrect as this ratio is useful for a manufacturer in managing their raw materials inventory. Option E is incorrect as the correct formula is Raw materials inventory/Daily cost of goods sold.

Which of the Following Statements Is Correct Concerning the Days