Zhang Company's financial records reveal the following at 30 June 2013.
Net sales .......................................$196 000
Cost of sales ...................................$104 000
Ending inventory .............................$ 21 000
Beginning inventory .........................$ 10 000
a. Assuming a 365-day year, calculate the days inventory ratio. Interpret and explain this ratio.
b. Zhang Company proposes to improve control of inventory and to reduce days inventory levels to 30 days. If this is achieved, calculate how many times inventory would be turned over per annum. Estimate by how much the average inventory would need to be reduced.