Number Of Days' Sales In Inventory

The relationship between inventory and cost of goods sold can also be expressed as the number of days' sales in inventory. In this ratio, the inventory at the end of the year is divided by the average daily cost of goods sold. The latter figure is determined by dividing the cost of goods sold by 365. The number of days' sales in inventory provides a rough measure of the length of time required to buy, sell, and then replace the inventory.

                                                     The Shehgarlynn Company
                                                         Turnover of Inventory

                     Cost of Goods Sold                                                  $895,000
                     Merchandise Inventory:
                        Beginning of Year                                                   $  85,200
                        End of Year                                                              150,300
                    Total                                                                             235,500
                    Average                                                                        105,150
                    Turnover of Inventory (895,000/105,150)                         8.5


The average daily cost of goods sold is $895,000/365 = $2,452.05

                                                   The Shehgarlynn Company
                                             Number of Days' Sales in Inventory

                                                                                                            2007

                     Inventory at End of Year                                             $150,300
                     Average Daily Cost of Goods Sold                                   2,452
                     Number of Days' Sales in Inventory (150,300/2,452)       61.29