Question

The King Corporation has ending inventory of $386,735, and cost of goods sold for the year just ended was $4,981,315.
a.	What is the inventory turnover? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
b.	What is the days' sales in inventory? (Use 365 days a year. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
c.	How long on average did a unit of inventory sit on the shelf before it was sold? (Use 365 days a year. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

a.	Inventory turnover		times
b.	Days' sales in inventory		days
c.	Inventory days on shelf		days

Answer 1

Given Info

Closing Inventory of King Corporation => $386,735

Cost of goods sold for the year => $4,981,315

a. Inventory turnover ratio

Inventory turnover shows the number of times a company has sold and replaced its inventory during a period.

Inventory turnover ratio => Cost of goods sold / Average Inventory

In the absence of average inventory, we could use the Closing inventory as a basis.

Inventory turnover ratio of King Corporation =$4,981,315 / $386,735 => 12.88 times

b. Days sales in inventory ratio

Days sales in inventory ratio shows the average no of days it has taken for the company to sell its inventory during a period.

Days sales in inventory ratio => [Average Inventory / Cost of goods sold] * 365

In the absence of average inventory, we could use the Closing inventory as a basis.

Days sales in inventory ratio => [$386,735 / $4,981,315] * 365 => 28.34 days

c. Inventory days on shelf

As explained above, days sales in inventory ratio gives us the no of days it has taken for the company to sell its inventory during a period. This turned out to be 28.34 days

This also means that the inventory was on shelf for 28.34 days before being sold.