Your firm’s 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. 14.4 days b. 13.0 days c. 11.7 days d. 15.2 days e. 16.7 days<\/p>\n\n\n\n
The correct answer and explanation is:<\/mark><\/strong><\/p>\n\n\n\n To calculate the inventory conversion period, we need to determine how long it takes the firm to convert its inventory into sales. The formula for the inventory conversion period is: Inventory Conversion Period=Average InventoryCOGS per Day\\text{Inventory Conversion Period} = \\frac{\\text{Average Inventory}}{\\text{COGS per Day}}<\/p>\n\n\n\n Step 1: Calculate the Average Inventory<\/strong><\/p>\n\n\n\n The firm keeps inventory equal to 50% of its monthly cost of goods sold (COGS), which is $2,000,000. Therefore, the average inventory is: Average Inventory=0.50\u00d72,000,000=1,000,000\\text{Average Inventory} = 0.50 \\times 2,000,000 = 1,000,000<\/p>\n\n\n\n Step 2: Calculate COGS per Day<\/strong><\/p>\n\n\n\n Since the firm\u2019s monthly COGS is $2,000,000, the daily COGS can be calculated as: COGS per Day=2,000,00030=66,667 (approximately)\\text{COGS per Day} = \\frac{2,000,000}{30} = 66,667 \\text{ (approximately)}<\/p>\n\n\n\n Step 3: Calculate the Inventory Conversion Period<\/strong><\/p>\n\n\n\n Now we can plug the values into the formula: Inventory Conversion Period=1,000,00066,667\u224815 days\\text{Inventory Conversion Period} = \\frac{1,000,000}{66,667} \\approx 15 \\text{ days}<\/p>\n\n\n\n Thus, the correct answer is d. 15.2 days<\/strong>.<\/p>\n\n\n\n Explanation:<\/strong><\/p>\n\n\n\n The inventory conversion period is a measure of how long it takes the company to sell its inventory. A lower number indicates a faster turnover, while a higher number indicates slower inventory movement. In this case, the firm holds inventory worth half its monthly COGS, meaning it takes about 15.2 days for it to sell and replenish its inventory. This is useful for assessing inventory efficiency and working capital management. A longer conversion period may signal overstocking or inefficiencies in inventory management.<\/p>\n","protected":false},"excerpt":{"rendered":" Your firm’s 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. 14.4 days b. 13.0 days c. 11.7 days d. 15.2 days e. 16.7 days The correct answer […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-47033","post","type-post","status-publish","format-standard","hentry","category-quiz-questions"],"_links":{"self":[{"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/posts\/47033","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/comments?post=47033"}],"version-history":[{"count":1,"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/posts\/47033\/revisions"}],"predecessor-version":[{"id":47035,"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/posts\/47033\/revisions\/47035"}],"wp:attachment":[{"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/media?parent=47033"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/categories?post=47033"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/tags?post=47033"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}