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About the online FM MCQ Test Question 2, it offers the answer: average inventory = 60/360*15M and average payables = 45/360*15M, but 15M is the related cost of sales I can’t quite understand why we should use this number to calculate both of them here? Is it because that we assume that all the money we used related to sales is for buying inventory?
Are you sure you are referring to the correct chapter? Question 2 of Chapter 5 has nothing relating to your question.
Oh, I am sorry Sir, it’s Question 2 of Chapter 6, the question about credit sales and net investment in working capital!
Inventory is valued at the cost of production and therefore we would always use the cost of sales.
As far as payables are concerned, if we had the information we would use purchases, but as I do explain in my free lectures if we do not know purchases (as is more often the case) we have no choice but to use the cost of sales.
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