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Thornton Universal Sales' cost of goods sold (COGS) average $2,000,000 per month, and it keeps inventory equal to 50% of its monthly COGS on hand at all times
Thornton Universal Sales' cost of goods sold (COGS) average $2,000,000 per month, and it keeps inventory equal to 50% of its monthly COGS on hand at all times. Using a 365-day year, what is its inventory conversion period?
a. 16.7 days
b. 15.2 days
c. 11.7 days
d. 14.4 days
e. 13.0 days
Expert Solution
Computation of Inventory Conversion Period:
Inventory Conversion Period = Inventory/(Annual Cost of Goods Sold/365)
Here,
Monthly Cost Of Goods Sold = $2,000,000
Inventory/Cost Of Goods Sold = 50%
Annual Cost Of Goods Sold = $2,000,000 * 12 = $24,000,000
Average Inventory = $2,000,000 * 50% =$1,000,000
Inventory Conversion Period = $1,000,000/($24,000,000/365) = 15.208 or 15.21 days
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