11. In the current year, a company reported cost of goods sold of $3,200,000 on its income statement. The company's beginning inventory balance was $100,000. During the year, the company purchased $3,250,000 of inventory. The company's ending inventory balance was $210,000. What was the company's average days to sell inventory for the year, rounded to two decimal places?
Answer: C
The company's average days to sell inventory for the year is 23.58.
To calculate the average days to sell inventory, we first determine the inventory turnover ratio, which is calculated by dividing the cost of goods sold by the average inventory. The average inventory is calculated as the sum of the beginning and ending inventory divided by two. In this case, the average inventory is ($100,000 + $210,000) / 2 = $155,000. The inventory turnover ratio is $3,200,000 / $155,000 = 20.65. Finally, the average days to sell inventory is calculated as 365 days / inventory turnover ratio, which results in approximately 23.58 days.
A) 21.1
Option A is incorrect because a calculation of average days to sell inventory of 21.1 does not align with the correct computation based on the provided cost of goods sold and inventory figures. This value suggests a higher turnover ratio than what the data supports, indicating a miscalculation.
B) 23.95
Option B is also incorrect as it presents an average days to sell inventory that does not correspond to the calculated inventory turnover ratio. This value is slightly higher than the correct answer, indicating an underestimation of the inventory turnover based on the given financial data.
C) 23.58
Option C is the correct choice. It accurately reflects the average days to sell inventory, calculated from the inventory turnover ratio derived from the cost of goods sold and average inventory. This calculation aligns perfectly with the provided financial information.
D) 20.78
Option D is incorrect because it suggests a lower average days to sell inventory than what the calculations indicate. This value implies a much faster turnover rate that does not match the company's actual inventory management as reflected in the cost of goods sold and average inventory figures.
Conclusion
The average days to sell inventory is definitively 23.58, as it is derived directly from the proper calculations involving the company's cost of goods sold and average inventory. All other options fail to accurately represent the company's inventory turnover, either by underestimating or overestimating the days required to sell inventory based on the given data.