Questions: Which of the following is the correct formula for calculating days' sales in raw materials inventory for a manufacturer? Select one: a. Ending raw materials inventory/Raw materials used × 365. b. Average raw materials inventory/Raw materials used. c. Raw materials used/Beginning raw materials inventory × 365. d. Raw materials purchased/Average raw materials inventory. e. Raw materials used/Average raw materials inventory.

Which of the following is the correct formula for calculating days' sales in raw materials inventory for a manufacturer?
Select one:
a. Ending raw materials inventory/Raw materials used × 365.
b. Average raw materials inventory/Raw materials used.
c. Raw materials used/Beginning raw materials inventory × 365.
d. Raw materials purchased/Average raw materials inventory.
e. Raw materials used/Average raw materials inventory.

Transcript text: Which of the following is the correct formula for calculating days' sales in raw materials inventory for a manufacturer? Select one: a. Ending raw materials inventory/Raw materials used $\times 365$. b. Average raw materials inventory/Raw materials used. c. Raw materials used/Beginning raw materials inventory $\times 365$. d. Raw materials purchased/Average raw materials inventory. e. Raw materials used/Average raw materials inventory.

Solution

Solution Steps

Step 1: Understand the concept of days' sales in raw materials inventory

Days' sales in raw materials inventory measures how many days, on average, raw materials remain in inventory before being used in production. It is calculated by dividing the average raw materials inventory by the raw materials used per day.

Step 2: Identify the correct formula

The correct formula for days' sales in raw materials inventory is: \[ \text{Days' sales in raw materials inventory} = \frac{\text{Average raw materials inventory}}{\text{Raw materials used}} \times 365 \] This formula ensures that the average inventory is compared to the daily usage of raw materials, scaled to a yearly basis.

Step 3: Match the formula to the options

Compare the correct formula to the provided options:

Option a: Ending raw materials inventory/Raw materials used $\times 365$ → Incorrect, as it uses ending inventory instead of average inventory.
Option b: Average raw materials inventory/Raw materials used → Incorrect, as it lacks the multiplication by 365.
Option c: Raw materials used/Beginning raw materials inventory $\times 365$ → Incorrect, as it uses beginning inventory and inverts the ratio.
Option d: Raw materials purchased/Average raw materials inventory → Incorrect, as it uses raw materials purchased instead of raw materials used.
Option e: Raw materials used/Average raw materials inventory → Incorrect, as it inverts the ratio and lacks the multiplication by 365.

None of the options exactly match the correct formula. However, the closest option is Option b, which is missing the multiplication by 365.