Chapter 6, Problem 6.7.4MBA

To determine

Concept Introduction:

Day's sales in inventory:

Days sales in inventory represent the number of days the inventory waits for the sale. It is calculated by dividing the 365 days by Inventory Turnover Ratio. The formula of the Days sales in inventory is as follows:

  $Dayssalesininventory=\frac{365}{InventoryTurnoverRatio}$

Inventory Turnover Ratio:

Inventory Turnover Ratio measures the efficiency of the company in converting its inventory into sales. It is calculated by dividing the Cost of goods sold by Average inventory. The formula of the Inventory Turnover Ratio is as follows:

  $InventoryTurnoverRatio=\frac{Costofgoodssold}{Averageinventory}$

Note: Average inventory is calculated with the help of following formula:

  $Averageinventory=\frac{(Beginninginventory+Endinginventory)}{2}$

To Calculate:

The Days sales in inventory for years 1 and 2