The Up-Towner has sales of $913,400, costs of goods sold of $579,300, inventory of $187,400, and accounts receivable of $78,900. How many days, on average, does it take the firm to sell its inventory assuming that all sales are on credit?

118.08 days

Explanation:

Days in inventory (DIY) measures the average number of days a firm inventory is tied up ie the number of days it takes for a company to turnover inventory.

It is calculated as

DIY= Average inventory/Cost of goods sold X Number of days in an Accounting period

Where average inventory is $187,400

Cost of goods sold is $579,300

Number of days in an accounting period is 365 days

DIY= 187,400/579,300 x 365

DIY= 68401000/579300

DIY= 118.08 days

18.08 days

Explanation:

The number of days it takes a firm to sell its inventory is referred to as inventory period, days in inventory, or days inventory outstanding.  

Inventory period is an efficiency ratio that also shows the number of days that inventory ties down funds, and it can be calculated as follows:  

Inventory period = 365 days ÷ ITR …………………….. (1)

Where;

ITR = Inventory turnover ratio = Cost of goods sold ÷ Inventory  

      = $579,300 ÷ $187,400

ITR = 3.09124866595518

Substituting 3.09124866595518 for ITR into equation (1), we have:

Inventory period = 365 days ÷ 3.09124866595518 = 118.08 days approximately.

Therefore, it takes the Up-Towner 118.08 days, on average, to sell its inventory.