This answer results from using the sales revenue of $350,000 instead of cost of goods sold of $160,000 in the calculation.
In order to calculate the days sales in inventory for 2011, we first need to calculate how many times the inventory turns over during the year. This is COGS divided by average inventory. COGS is budgeted at $160,000 and average inventory is $75,000 (the average of $70,000 actual at year-end 2010 and $80,000 planned for year-end 2011). This gives us an inventory turnover ratio of $160,000 ÷ $75,000 = 2.13 times per year. If the inventory turns over 2.13 times during the year, then the days of sales in inventory equals 171 days (365 ÷ 2.13).
In order to calculate the days sales in inventory for 2011, we first need to calculate how many times the inventory turns over during the year. This is COGS divided by average inventory. This answer uses the year-end inventory instead of the average inventory in the calculation of the number of days of sales in inventory.
In order to calculate the days sales in inventory for 2011, we first need to calculate how many times the inventory turns over during the year. This is COGS divided by average inventory. This answer uses the beginning 2011 inventory (the 2010 year-end inventory) instead of the average inventory for 2011 in the calculation of the number of days of sales in inventory.
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Using a 365-day year, McKeon's days of sales in inventory is