Question

Ivanhoe Inc. has sales of $2,700,000, a gross profit margin of 35.0 percent, and inventory of $1,000,000. What are the company’s inventory turnover ratio and days’ sales in inventory? (Round inventory turnover ratio to 3 decimal places, e.g. 12.555 and days' sales in inventory to 1 decimal place, e.g. 12.5. Use 365 days for calculation.)

Inventory turnover ratio times

Days’ sales in inventory days

Answer 1

Gross profit margin = (Sales - Cost of goods sold) / Sales

0.350 = ($2,700,000 - Cost of goods sold) / $2,700,000

0.350 * $2,700,000 = $2,700,000 - Cost of goods sold

$945,000 = $2,700,000 - Cost of goods sold

Cost of goods sold = $2,700,000 - $945,000

Cost of goods sold = $1,755,000

Inventory turnover ratio = Cost of goods sold / Inventory

Inventory turnover ratio = $1,755,000 / $1,000,000

Inventory turnover ratio = 1.755

Day's sales in inventory = 365 / 1.755

Day's sales in inventory = 208.0 days