A company has sales of $5,737,000, a gross profit ratio of 35%, ending merchandise inventory of $361,425, and total current assets of $5,539,600. What is the days sales' in inventory ratio for the year?
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First, we need to get the Cost of Goods Sold (COGS). This is done from the information that the gross profit ratio is 35%. We have that:
0.35 = (sales - COGS)/sales. The sales was 5,737,000, which gives COGS =3,729,050.
The inventory ratio is COGS/inventory = 3,729,050/361,425 = 10.3176
Now days sales' inventory is given by (1/10.3176 ) * 365 days = 35.37 days
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