Which of the following formulas is used to calculate days' sales in inventory?

• A. Days' Sales in Inventory = (Average Inventory \div Net Sales) \times 365
• B. Days' Sales in Inventory = (Cost of Goods Sold \div Ending Inventory) \times 365
• C. Days' Sales in Inventory = (Ending Inventory \div Cost of Goods Sold) \times 365
• D. Days' Sales in Inventory = (Net Sales \div Average Inventory) \times 365

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the concept of Days' Sales in Inventory. It is a financial metric used to measure the average number of days a company takes to sell its inventory during a specific period. This helps assess inventory management efficiency.
2. Step 2: Identify the correct formula for Days' Sales in Inventory. The formula is: Days' Sales in Inventory = (Ending Inventory ÷ Cost of Goods Sold) × 365.
3. Step 3: Break down the components of the formula: 'Ending Inventory' refers to the value of inventory remaining at the end of the period, and 'Cost of Goods Sold' (COGS) represents the direct costs attributable to the production of goods sold by the company.
4. Step 4: Understand the calculation process. Divide the Ending Inventory by the Cost of Goods Sold to determine the proportion of inventory relative to sales. Then, multiply the result by 365 to convert this proportion into the number of days.
5. Step 5: Apply the formula to a given scenario or dataset. Ensure you have accurate values for Ending Inventory and Cost of Goods Sold, and perform the division and multiplication steps systematically to calculate Days' Sales in Inventory.