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Thornton Universal Sales' cost of goods sold (COGS) average $2,000,000 per month, and it keeps inventory equal to 50% of its monthly COGS on hand at all times. Using a 365-day year, what is its inventory conversion period

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Answer:

Inventory conversion period will be 15.20 days

Explanation:

Cost of goods per month = $2000000

So cost of good for an year = 12 × $2000000 = $24000000

Now it is given that inventory is 50 5 of monthly COGS

So average inventory = 50 % of $2000000 = $1000000

Total days in an year = 365 days

So COGS per day [tex]=\frac{24000000}{365}=$65753.4246[/tex]

Now inventory conversion period [tex]=\frac{average\ inventory}{COGS\ per\ day}=\frac{1000000}{65753.4245}=15.20days[/tex]

Inventory conversion period will be 15.20 days