It is the total cost of manufacturing the products. The formula of computing the days inventory outstanding is DIO = Average inventory/ (costs of goods sold/days) Here, the costs of goods sold include, the cost of the raw materials and other resources which forms the inventory and the labor and other utility costs. Calculating the Days Inventory Outstanding A higher number, on the other hand, indicates the products are piling up in the company's inventory involving a large investment. Generally, a lower number than the industry norm indicates the company's inventory is being sold out more frequently leading to a higher profit. In general, a lowers number is preferred as it indicates the funds are tied up in the company's inventory for a shorter period of time. The average days inventory outstanding depends on the nature of the product and the industry. It can be expressed in different ways and the figure indicates the number of days the company needs to finish all the products stored in its inventory.īack to: Accounting & Taxation How does Days Inventory Outstanding Work? It is the average number of days a company takes to sell all the goods from its inventory including the products under the process of making. Update Table of Contents What is Days Inventory Outstanding? How does Days Inventory Outstanding Work? Calculating the Days Inventory Outstanding Academic Research on Days Inventory Outstanding What is Days Inventory Outstanding?ĭays inventory outstanding, also known as days sales of inventory, days inventory, days cover or stock cover, is an efficiency ratio representing the average number of days worth of products remain in the inventory of a company before being sold.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |