Calculating average daily COGS.

Average Daily COGS (quarterly) = (COGS mo. 1 + COGS mo. 2

+

COGS mo. 3) / 90 days

Average Daily COGS in Inventory = Ending Inventory / Average Daily COGS

ASSUMPTIONS

January

February

March

April

May

COGS

100

150

225

200

125

Ending

40

5

0

62

62

42

Inventory

Average Daily COGS (Quarterly)

5.28

6.39

6.11

Average Days COGS in Inventory

11.75

9.70

6.87

Purchases = EI - BI + COGS

237

200

105

Example:

March quarterly COGS = (100 + 150 + 225) / 90 = 5.278

Example

:

March average daily COGS in inventory = 62 / 5.278 = 11.75

Example:

March purchases = 62 - 50 + 225 = 237

b.)

Interpretation:

It appears as though inventory is being held for a shorter time period with each

successive month from 11.75 days in March to only 6.87 days in May