31) Last year, ABC and XYZ both had the same level of cost of goods sold, but ABC turned its inventory over 8 times during the year while XYZ turned its inventory over every 55 days. If the objective is to keep inventory as low as possible on average, which of the following is true?

(A) ABC did a better job since its inventory turnover was higher.

(B) XYZ did a better job since its days sales in inventory was lower.

(C) ABC did a better job since its days sales in inventory was higher.

(D) XYZ did a better job since its inventory turnover was lower.

Question

Business

Aleena Sampson

17 May, 16:05

31) Last year, ABC and XYZ both had the same level of cost of goods sold, but ABC turned its inventory over 8 times during the year while XYZ turned its inventory over every 55 days. If the objective is to keep inventory as low as possible on average, which of the following is true?

(A) ABC did a better job since its inventory turnover was higher.

(B) XYZ did a better job since its days sales in inventory was lower.

(C) ABC did a better job since its days sales in inventory was higher.

(D) XYZ did a better job since its inventory turnover was lower.

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Answers (1)

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Dustin · Answer 1

ABC Inventory turnover = 8

365/8 = 45.6, Abc turned its inventory over every 45 days

XYZ turned its inventory over every 55 days.

XYZ inventory turnover = 365/55=6.6

ABC did a better job since its inventory turnover was higher.

Its better to have a higher inventory turnover as it, because it shows how many times a year has a company sold and replaced inventory in a year, a high turnover ratio means that a company sells its inventory very fast and does not overstock.