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newacctstudent · Jul 31, 2013, 05:50 PM

A firm has $100 of average inventory, gross margin of $1200 and sales of 1500. Its measure of inventory or days in inventory using a 365 days a year is:

A.) 30.4
B.) 91.3
C.) 121.7
D.) not enough info

I need help, every time I do this problem I end up with .20334 days, which is not an option.

pready · Jul 31, 2013, 06:05 PM

For this problem you first need to know the Inventory turnover Ratio to solve for Days in Inventory.

So to solve for Inventory Turnover Ratio you need to know Cost of Goods Sold. This is the difference between sales and gross margin. Next take your cost of goods sold and divide it by average inventory to get your Inventory Turnover Ratio.

Now to solve for days in inventory take number of days in a year, which is 365 divided by the Inventory Turnover Ratio equals your Days in Inventory.