Oak(12/11) Mike

Sales, in the first problem, does not include sales tax whereas the receivables does. Maybe that answers that point. 365 is not always used in the denominator – sometimes people use 360, sometimes 350, or 300 or even 250

(360 excludes bank holidays, 350 takes out the company’s annual 2 week holiday, 300 is 50 weeks x 6 days and 250 is 50 weeks x 5 working days)

It really doesn’t matter so long as the basis is consistently applied and therefore gives comparable results

Inventory days has basically the same problems but in addition the use of cost of sales as the denominator is highly questionable! In a manufacturing business, cost of sales comprises not just the inventory used in production in the year but also direct wages and direct expenses and if the company adopts an absorption costing base, then it includes also an element of fixed overheads

But you’re sitting there with the BPP answer in front of you (I’m not). Is there no explanation from BPP as to the source of their denominators?

Ok, I’ve checked the exam question and noted the basis of the exam answer. Your post has not indicated the time-apportionment of the fact that the figures given in the question are for 11 months only. We should not be dividing by 365 within the calculations since sales and inventory purchases have taken place over an 11 month period.

If we are to multiply receivables / sales by 365, we need to put the sales amount onto an annualised basis

The alternative calculation would be to reduce the 365 and the calculation would then become receivables / sales multiplied by 335 (365 days in a full year – 31 December days)

OK?

You’re welcome