Suppose at December 31 of a recent year, the following information (in thousands) was available for sunglasses manufacturer Oakley Inc.: ending inventory $166,000; beginning inventory $120,000; cost of goods sold $351,780 and sales revenue $761,000.
A- Calculate the inventory turnover for Oakley, Inc.
B- Calculate the days in inventory for Oakley, Inc.

A-Inventory Turnover Ratio = $ 351,780 ÷ $ 144,000 = 2.4 Times

B-Inventory Days = ( 144,000 ÷ 351,780) × 365 = 149.4 Days

Explanation:

A-Inventory Turnover Ratio:

Inventory turnover ratio is calculated in order to identify number of times inventory is used or sold over a period of time:

Formula:

Inventory Turnover Ratio: Cost of Goods Sold ÷ Average Inventory

* Average Inventory = (Opening Inventory + Closing Inventory) / 2

** Average Inventory = ($120,000+ $166,000) ÷ 2 = $ 144,000.

*** Inventory Turnover Ratio = $ 351,780 ÷ $ 144,000 = 2.4 Times

B- Inventory Days:

Inventory days is an efficiency ratio that indicates the average number of days a company holds it inventory before selling it.

Formula:

Inventory Days = (Average Inventory ÷ Cost of Goods Sold) × 365 days.

Inventory days = ( 144,000 ÷ 351,780) × 365 = 149.4 Days

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