My issue with figuring out days to sell inventory is that inventory tends to come in on a continuous basis at a variable rate and they are sold out at a continuous basis at a variable rate. How would you calculate the days to sell inventory like that? Let's say you get 100 corn cobs on day 0. You sell 50 by day 10 and you have 50 remaining and also on that day you get a new shipment of 100 corn cobs. By day 20 you sell an additional 75 corn cobs so you have sold 125 with 75 remaining. What is your days to sell inventory?
find out cost of good sold COGS then divide by inventory for example COGS divide by inventory = 5000/1000 is 5 365/5 = 73 days Every time you stock up 1000 corn cobs it takes 73 days Remember its still an estimate as some stock will take longer to sell depending on the circumstances
absolutely brilliant! Thank you! You're doing an amazing job!
😀
Great explanation.
Question: How is the purchasing department a relevant figure in the organization’s goal of shortening the operating cycle period?
My issue with figuring out days to sell inventory is that inventory tends to come in on a continuous basis at a variable rate and they are sold out at a continuous basis at a variable rate. How would you calculate the days to sell inventory like that?
Let's say you get 100 corn cobs on day 0. You sell 50 by day 10 and you have 50 remaining and also on that day you get a new shipment of 100 corn cobs. By day 20 you sell an additional 75 corn cobs so you have sold 125 with 75 remaining. What is your days to sell inventory?
find out cost of good sold COGS then divide by inventory
for example COGS divide by inventory = 5000/1000 is 5
365/5 = 73 days
Every time you stock up 1000 corn cobs it takes 73 days
Remember its still an estimate as some stock will take longer to sell depending on the circumstances
Can an operating cycle be more than 1.5 years?
Yes
Where is the accounts payable in this explanation?
MrGoykie it’s cash conversion cycle if you will include accounts payable