ACCA Applied Knowledge · Financial Accounting · Ratios
Pryce Co has opening inventory of $90,000, closing inventory of $110,000 and cost of sales of $800,000. Using average inventory and a 365-day year, what are the inventory holding days (to the nearest day)?
Inventory days using average inventory equal average inventory divided by cost of sales, multiplied by 365. Average inventory is 100,000, so 100,000 divided by 800,000 times 365 is about 45.6, or 46 days.
- A46 days
- B50 daysCorrect
- C40 days
- D55 days
Explanation
Average inventory = (90,000 + 110,000) / 2 = 100,000. Days = 100,000 / 800,000 x 365 = 45.6, which is 46 days. Using closing inventory gives 50 days, which is the wrong base.
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