   Chapter 9, Problem 5SEQ

Chapter
Section
Textbook Problem

A measure useful in evaluating efficieny in the management of inventories is the: A. Working capital ratio B. Quick ratio C. Days' sales in inventory D. Ratio of fixed assets to long-term liabilities

To determine

Concept Introduction:

Inventory Turnover Ratio:

Inventory Turnover Ratio measures the efficiency of the company in converting its inventory into sales. It is calculated by dividing the Cost of goods sold by the Average inventory. The formula of the Inventory Turnover Ratio is as follows:

Inventory Turnover Ratio=Cost of goods soldAverage inventory

Note: Average inventory is calculated with the help of following formula:

Average inventory=(Beginning inventory + Ending inventory)2

Day's sales in inventory:

Days sales in inventory represent the number of days the inventory waits for the sale. It is calculated using the following formula:

Day Sales in Inventory =  Inventory *365Cost of Goods Sold

To Choose:

The measure useful in evaluating efficiency in the management of inventories.

Explanation

Explanation for correct answer:

Sales in inventory represent the number of days the inventory waits for the sale. This is useful in evaluating efficiency in the management of inventories. Hence, the correct option is C.

Explanation for incorrect answers:

A. Working capital ratio evacuates the current position of the company...

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PAYROLL ACCT.,2019 ED.(LL)-TEXT 