# Practice exam 1 - Question 7 d) calculating Inventory Holding Period

philreddy1985
Posts:

**23**Registered
I am wondering if someone could give me some help with a question from the MDCL practice exam 1 please.

The formula I am given in my textbook for calculating Inventory Days is:-

I can understand this ratio when using the simple example provided in my textbook (all figures are already provided) but when I am trying to apply this ratio to the exam question I am becoming lost.

What is meant by

How am I calculating cost of sales? Is it Revenue - Purchases or Payables?

The question is as follows:-

Calculate the Inventory Holding Period in days.

The formula I am given in my textbook for calculating Inventory Days is:-

**Inventories/Cost Of sales x 365**I can understand this ratio when using the simple example provided in my textbook (all figures are already provided) but when I am trying to apply this ratio to the exam question I am becoming lost.

What is meant by

**'Inventories'**? Does this mean Opening + Purchases - Closing Inv?How am I calculating cost of sales? Is it Revenue - Purchases or Payables?

The question is as follows:-

**Revenue - 1,350,400**

Opening Inv -122,658

Purchases - 849,200

Closing Inv - 110,000

Receivables - 369, 973

Payables - 118, 063Opening Inv -122,658

Purchases - 849,200

Closing Inv - 110,000

Receivables - 369, 973

Payables - 118, 063

Calculate the Inventory Holding Period in days.

## Comments

149Registered, TutorOne question remains, for "Inventories". Should you use the average (of opening and closing) or the closing inventory? Average is theoretically better but see if your textbook suggests which to use.

23RegisteredThank you for your response, the textbook I am using just states

Inventories / COS x 365It does not say whether this is Opening/Closing or the average.

I am suitably confused as this equation is only afforded half a page in my textbook with no further explanation given.

149Registered, Tutor23Registered116329 / (COS) 861858 x 365 = 49

Thank you for your help.

149Registered, Tutor