ACCA Applied Knowledge · Financial Accounting · Analysis of financial statements
Zeta Co has revenue of $900,000 and cost of sales of $540,000. Year-end inventory is $90,000 and trade receivables are $150,000. Using year-end figures and a 365-day year, what is the inventory holding period in days (to the nearest day)?
Inventory days are 61. Divide closing inventory of $90,000 by cost of sales of $540,000 and multiply by 365, giving about 60.8 days. Cost of sales is the correct base because inventory is valued at cost, not at selling price.
- A61 daysCorrect
- B41 days
- C100 days
- D37 days
Explanation
Inventory days = inventory / cost of sales × 365 = 90,000 / 540,000 × 365 = 60.8, so 61 days. Using revenue as the base gives 36.5 days (37), which is wrong because inventory is held at cost. 41 days uses receivables... not relevant; 100 days is an unrelated figure.
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