CIMA Financial Reporting (F1) Practice Exam

What is the finished goods inventory holding period?

average finished goods inventory held / cost of goods sold x 365 average finished goods inventory held / sales x 365 average finished goods inventory held / gross profit x 365 average finished goods inventory held / total assets x 365

Correct Answer:

average finished goods inventory held / cost of goods sold x 365

Explanation:

The finished goods inventory holding period shows, on average, how many days finished goods remain in stock before being sold. It’s calculated by taking the average finished goods inventory for the period, dividing it by the cost of goods sold for the same period, and multiplying by 365 days. Using cost of goods sold makes sense because it reflects the rate at which inventory is converted into cost of sales; it ties the stock level to the actual flow of goods. Using sales would measure how quickly revenue is earned, not how long inventory sits; gross profit ignores the cost side, and total assets mix in other items not directly related to inventory turnover. So the correct approach is average finished goods inventory divided by COGS, times 365.

Access more questions from this quiz

Continue to CIMA Financial Reporting (F1) Practice Exam for more practice questions and the full quiz experience.

Access More Questions