Explanation:
To calculate Days of Inventory on Hand (DOH), we use:
The question states that changes to the allowance for inventory obsolescence have already been reflected in cost of sales.
This means any inventory write-down has already reduced cost of sales, and therefore inventory should be used at its cost amounts, not re-adjusted to NRV.
If write-downs are already included in cost of sales, use inventory at cost when calculating turnover ratios.
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An analyst gathers the following information (in € thousands) about an electronics manufacturing company:
| Year 2 | Year 1 | |
|---|---|---|
| Cost of sales | 1,000 | 800 |
| Cost of ending inventory | 150 | 120 |
| Net realizable value of inventory | 125 | 160 |
Changes to the allowance for inventory obsolescence have already been reflected in cost of sales. The days of inventory on hand (based on average inventory and 365-day year) for Year 2 is closest to:
A
B
C
