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inventory days

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › inventory days

  • This topic has 1 reply, 2 voices, and was last updated 8 years ago by John Moffat.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Posts
  • March 13, 2017 at 11:14 am #378022
    kitse
    Member
    • Topics: 13
    • Replies: 8
    • ☆

    chapter 3 example 1

    inventory days = Inventory/Cost of Goods Sold

    instead of calculating inventory days for the raw materials, work in progress and finished goods, and then adding the three up as you do in the lectures, why not add up the inventories and calculate the inventory days as ff:

    $(108000+75600+86400)/$756000 X 365 days

    because by definition,

    Opening Inventory (of RM+WIP+FG)
    +Purchases (of RM+WIP+FG)
    =Cost of Production
    -Closing Inventory (of RM+WIP+FG)
    =COGS

    March 13, 2017 at 5:02 pm #378068
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54655
    • ☆☆☆☆☆

    With regard to finished goods and working in progress, then by all means add them up and divide by the cost of goods sold.

    However, with regard to materials, if we want to know the inventory days then we should divide by the purchases of materials during the year if we know it from the question. In most questions we are not told how much material was purchased and therefore we have no choice but to use the cost of goods sold.

    The cost of materials is obviously not the same as the cost of goods sold, which is why dividing by the cost of goods sold is not correct at all (unless we have no choice in the exam, as I wrote above).

    I do suggest that you watch the lecture again, because I do say this in the lecture!

  • Author
    Posts
Viewing 2 posts - 1 through 2 (of 2 total)
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