A Level Accounting (9706)•9706/11/M/J/19
Explanation
Inventory Turnover Ratio Calculation
Steps:
- Identify Cost of Goods Sold (COGS) and average inventory from financial statements.
- Compute inventory turnover ratio: COGS divided by average inventory.
- Convert ratio to days: 365 divided by the turnover ratio.
- Round to nearest whole number for matching choices.
Why B is correct:
- 90 days matches the standard formula result of 365 / 4.06 ≈ 90, where ratio is COGS / average inventory.
Why the others are wrong:
- A: 86 days underestimates days by using 365 / 4.24, incorrect ratio.
- C: 95 days overestimates by using 365 / 3.84, wrong inputs.
- D: 100 days assumes ratio of 3.65, not supported by data.
Final answer: B
Topic: Analysis and communication of accounting information
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