Asked by Dominique Pierre Louis on Jun 28, 2024
Verified
Pascarelli Corporation's inventory at the end of Year 2 was $122,000 and its inventory at the end of Year 1 was $150,000. Cost of goods sold amounted to $870,000 in Year 2. The company's average sale period for Year 2 is closest to: (Round your intermediate calculations to 2 decimal places.)
A) 230.1 days
B) 51.2 days
C) 57.0 days
D) 32.3 days
Average Sale Period
The average sale period measures the average amount of time it takes for a business to convert its inventory into sales.
Cost of Goods Sold
The total cost of manufacturing and delivering a product to customers, typically including material, labor, and overhead expenses.
Inventory
Materials and goods a business holds for the purpose of resale or as input in its production process.
- Ascertain and understand the inventory turnover ratio and the typical sales cycle length.
Verified Answer
Average Inventory = (Beginning Inventory + Ending Inventory) / 2
And then use the formula:
Average Sale Period = (Average Inventory / Cost of Goods Sold) * 365
To find the average sale period.
Plugging in the values, we get:
Average Inventory = ($150,000 + $122,000) / 2 = $136,000
Average Sale Period = ($136,000 / $870,000) * 365 = 57.04 days
Rounding to the nearest tenth, we get an average sale period of 57.0 days, which is closest to answer choice C.
Learning Objectives
- Ascertain and understand the inventory turnover ratio and the typical sales cycle length.
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