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Inventory
Days ratio of 3 elements of inventory can be differently calculated.
Finished goods days has a denominator (D) of -cost of sales
WIP has D of -cost of production
And raw materials have D of -cost of purchases
Are these 3 mutually exclusive or “cost of sales” includes both “cost of prod and cost of purchases”
And likewise, cost of prod includes clst of purchases.
ThanksThey are mutually exclusive. There are three types of inventories – raw materials, work-in-progress, and finished goods.
The cost of sales certainly includes the cost of purchases, but that is of no relevance – we are trying to get an idea of how long each of the inventories will last.
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