Days' sales in inventory is calculated as:
A)Ending inventory divided by sales times 365.
B)Cost of goods sold divided by ending inventory.
C)Ending inventory divided by cost of goods sold times 365.
D)Cost of goods sold divided by ending inventory times 365.
E)Ending inventory divided by cost of goods sold.

Question

Quizplus · Accepted Answer

Days' sales in inventory is calculated by taking the ending inventory and dividing it by the cost of goods sold, then multiplying that number by 365. This will give the number of days it takes for a company to sell its inventory. Option A is incorrect as it divides sales by inventory, not the other way around. Option B is the opposite of the correct formula. Option D multiplies cost of goods sold by inventory, which is incorrect. Option E divides inventory by cost of goods sold, which is the opposite of the correct formula.

Days' Sales in Inventory Is Calculated As