CFA Level I · CFA Level I Exam · Analysis of Inventories
A company reports cost of sales of 840,000 for the year. Inventory was 150,000 at the start of the year and 190,000 at the end. Using average inventory, the company's days of inventory on hand (365-day year) is closest to:
Days of inventory on hand is closest to 74 days. Average inventory is 170,000, turnover is 840,000 divided by 170,000, or about 4.94 times, and 365 divided by 4.94 gives roughly 73.9 days.
- A73 days
- B74 daysCorrect
- C80 days
Explanation
Average inventory = (150,000 + 190,000)/2 = 170,000. Turnover = 840,000/170,000 = 4.941. Days = 365/4.941 = 73.9, about 74 days. Using ending inventory gives 190,000/840,000 x 365 = 82.6; using beginning inventory gives 65.2, so neither equals the key. The 73 and 80 figures arise from rounding or mis-averaging errors.
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