ACCA Applied Knowledge · Financial Accounting · Analysis of financial statements
Orion Co reports cost of sales of $900,000, opening inventory of $120,000 and closing inventory of $180,000. Assuming a 365-day year, what is the inventory holding period using average inventory (to the nearest day)?
The inventory holding period is about 61 days. Average inventory of $150,000 is divided by cost of sales of $900,000 and multiplied by 365. Using closing inventory alone would give 73 days, which does not follow the average basis stated.
- A61 days
- B73 daysCorrect
- C44 days
- D90 days
Explanation
Average inventory = (120,000 + 180,000)/2 = 150,000. Days = 150,000 / 900,000 x 365 = 60.8, about 61 days. Using closing inventory gives 180,000/900,000 x 365 = 73 days, which ignores the requirement to use average inventory.
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