CMA Intermediate · Financial Management and Business Data Analytics · Inventory Management
Himalaya Foods has sales of Rs 60,00,000 at a gross profit margin of 25% on sales. Opening inventory is Rs 4,00,000 and closing inventory is Rs 6,00,000. Management wants to compute the inventory conversion period on a 360-day year using average inventory and cost of goods sold. What is it?
The inventory conversion period is 40 days. Cost of goods sold is Rs 45,00,000 after removing a 25% margin from sales, average inventory is Rs 5,00,000, turnover is 9 times, and 360 divided by 9 equals 40 days.
- A30 days
- B40 daysCorrect
- C27 days
- D50 days
Explanation
Gross profit = 25% x 60,00,000 = 15,00,000, so COGS = 45,00,000. Average inventory = 5,00,000. Turnover = 9 times; period = 360/9 = 40 days. Using sales instead of COGS gives 12 times and 30 days, which is the wrong base.
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