Asked by Navpreet singh on Jun 19, 2024
Verified
Irawaddy Company, a retailer, had cost of goods sold of $230,000 last year.The beginning inventory balance was $24,000 and the ending inventory balance was $22,000.The company's average sale period was closest to:
A) 36.5 days
B) 73.0 days
C) 38.1 days
D) 34.9 days
Average Sale Period
The average time it takes for a company to convert its inventory into sales, often used in analyzing a company's efficiency.
Cost of Goods Sold
The direct costs attributable to the production of goods sold by a company, including the cost of the materials and labor directly used to create the good.
Beginning Inventory
The value of goods available for sale at the start of an accounting period.
- Understand the computation and implications of the operating cycle and how it affects company liquidity.
Verified Answer
JR
Jessica RestrepoJun 26, 2024
Final Answer :
A
Explanation :
Average inventory balance = ($24,000 + $22,000)÷ 2 = $23,000
Inventory turnover = Cost of goods sold ÷ Average inventory balance
= $230,000 ÷ $23,000 = 10
Average sale period = 365 days ÷ Inventory turnover
= 365 days ÷ 10 = 36.5 days
Inventory turnover = Cost of goods sold ÷ Average inventory balance
= $230,000 ÷ $23,000 = 10
Average sale period = 365 days ÷ Inventory turnover
= 365 days ÷ 10 = 36.5 days
Learning Objectives
- Understand the computation and implications of the operating cycle and how it affects company liquidity.