Days Sales of Inventory (DSI): Measuring Inventory Turnover Efficiency

Question 1

A DSI of 60 days suggests that a company takes approximately:

Accepted Answer

2 months to sell its inventory

Answer

1 month to sell its inventory

Answer

2 weeks to sell its inventory

Answer

1 week to sell its inventory

Question 2

Which formula accurately calculates Days Sales of Inventory (DSI)?

Accepted Answer

DSI = Average Inventory / (Cost of Goods Sold / 365)

Answer

DSI = (Cost of Goods Sold / 365) / Average Inventory

Answer

DSI = Cost of Goods Sold / Average Inventory

Answer

DSI = Inventory Turnover * 365

Question 3

How does a high DSI impact a company's financial performance?

Accepted Answer

Reduced cash flow

Answer

Increased profitability

Answer

Improved inventory turnover

Answer

Lower operating costs

Question 4

A company with a DSI of 60 days indicates that:

Accepted Answer

It takes the company 60 days to sell its entire inventory

Answer

The company has 60 days' worth of inventory on hand

Answer

The company's inventory turnover is 0.017

Answer

The company's cost of goods sold is 60% of its average inventory

Question 5

DSI is a metric commonly used in which type of inventory management system?

Accepted Answer

Both periodic and perpetual inventory systems

Answer

Periodic inventory system

Answer

Perpetual inventory system

Answer

Neither periodic nor perpetual inventory systems

Question 6

How does seasonality impact Days Sales of Inventory (DSI), and what challenges arise when interpreting DSI during seasonal periods?

Accepted Answer

Seasonality can cause DSI fluctuations due to varying inventory levels and sales patterns throughout the year.

Answer

DSI is not affected by seasonality because it only measures the average time to sell inventory.

Answer

Seasonality always leads to a higher DSI due to increased demand and inventory levels.

Question 7

A company maintains an average inventory of $40,000 and has a daily cost of goods sold of $15,000. Calculate its DSI.

Accepted Answer

2.67 days

Answer

10 days

Answer

1 day

Answer

5 days

Question 8

What does a DSI of 45 days signify?

Accepted Answer

The company takes an average of 45 days to sell its inventory

Answer

The company's inventory turnover is 8

Answer

The company has 45 days of inventory on hand

Question 9

For retail companies, what is considered an ideal range for DSI?

Accepted Answer

30-60 days

Answer

15-30 days

Answer

60-90 days

Answer

90-120 days

Question 10

Which of the following is NOT an advantage of maintaining an optimal DSI?

Accepted Answer

Reduced customer service levels

Answer

Enhanced inventory accuracy

Answer

Reduced carrying costs

Answer

Improved cash flow

Question 11

What is the primary purpose of using DSI as a financial metric?

Accepted Answer

To measure inventory efficiency

Answer

To determine capital structure

Answer

To assess profitability

Answer

To evaluate investment opportunities

Question 12

What is the primary purpose of calculating Days Sales of Inventory (DSI)?

Accepted Answer

To measure the average time it takes for a company to convert inventory into sales.

Answer

To determine the number of times inventory is sold and replenished within a year.

Answer

To assess the total value of a company's inventory on a specific date.

Question 13

Generally, which of the following is considered a desirable trend for a company's DSI?

Accepted Answer

Decreasing DSI

Answer

Increasing DSI

Answer

Fluctuating DSI

Answer

Stable DSI

Question 14

A high DSI may be indicative of which of the following?

Accepted Answer

Excessive inventory levels or slow-moving inventory

Answer

High customer demand for the company's products

Answer

Low storage costs and minimal inventory holding risks

Answer

Efficient inventory management and strong sales performance

Question 15

Which of these factors can influence a company's DSI?

Accepted Answer

All of the above

Answer

Industry norms and seasonal fluctuations

Answer

Sales strategies and pricing policies

Answer

Effectiveness of supply chain and production processes

Question 16

Why is it important for companies to monitor their DSI?

Accepted Answer

It helps them identify potential inventory inefficiencies and optimize their inventory levels.

Answer

It determines the optimal selling prices for products.

Answer

It accurately predicts future customer demand and sales trends.

Question 17

What is a potential strategy that companies can implement to improve their DSI?

Accepted Answer

Enhancing inventory forecasting and planning techniques

Answer

Increasing product prices across the board

Answer

Reducing marketing and advertising efforts

Question 18

Which of the following describes the relationship between DSI and cash flow?

Accepted Answer

A lower DSI typically results in faster cash conversion and improved cash flow.

Answer

A higher DSI leads to increased cash flow due to higher sales.

Answer

DSI has no direct impact on a company's cash flow.

Question 19

What is a limitation of using DSI as a stand-alone metric for inventory management?

Accepted Answer

DSI does not account for industry-specific factors or seasonal variations.

Answer

DSI is only reliable for companies with high inventory levels.

Answer

DSI is a complex calculation that is difficult to understand.

Question 20

A company has an average inventory of $1,000,000 and an annual cost of goods sold of $12,000,000. What is the company's Days Sales of Inventory (DSI)?

Accepted Answer

36.5 days

Answer

60 days

Answer

90 days

Answer

12 days

Question 21

Which of the following factors would NOT directly impact a company's Days Sales of Inventory (DSI)?

Accepted Answer

Interest rates on company loans

Answer

Average inventory levels

Answer

Inventory turnover rate

Answer

Cost of goods sold

Question 22

A company with a DSI of 45 days wants to reduce it to 30 days. Which of the following strategies would be MOST effective in achieving this goal?

Accepted Answer

Implement a Just-In-Time (JIT) inventory system

Answer

Raise selling prices

Answer

Increase production volume

Answer

Reduce marketing expenses

Question 23

A low DSI generally indicates:

Accepted Answer

Efficient inventory management and quick sales

Answer

High inventory carrying costs

Answer

Potential for stockouts

Answer

Slow customer service response times

Question 24

A company with a high DSI is likely to have:

Accepted Answer

Large amounts of inventory on hand

Answer

Frequent stockouts

Answer

Rapid product innovation cycles

Answer

Low inventory holding costs

Question 25

How can DSI be used to assess a company's overall financial health?

Accepted Answer

By revealing potential issues with inventory management and cash flow

Answer

By predicting future sales revenue

Answer

By measuring the company's profitability

Answer

By determining the optimal pricing strategy

Question 26

A company with a DSI of 60 days compared to its industry average of 45 days might be facing which of the following challenges?

Accepted Answer

Excess inventory and potential obsolescence

Answer

High customer demand exceeding supply

Answer

Inadequate production capacity

Answer

Limited access to raw materials

Question 27

A company is considering offering discounts to customers for early payments. How might this affect their DSI?

Accepted Answer

Decrease DSI by encouraging faster inventory turnover

Answer

Increase DSI by reducing sales volume

Answer

Have no significant impact on DSI

Answer

Increase DSI by attracting new customers

Question 28

What is the primary advantage of using DSI as a performance metric compared to simply looking at inventory levels?

Accepted Answer

DSI provides a more dynamic view of inventory efficiency by considering sales velocity

Answer

DSI directly reflects profitability

Answer

DSI is more accurate than inventory levels

Answer

DSI is easier to calculate than inventory levels

Question 29

Which of the following factors does NOT directly influence Days Sales of Inventory (DSI)?

Accepted Answer

Marketing budget allocation

Answer

Cost of goods sold

Answer

Inventory turnover rate

Answer

Average inventory value

Question 30

A company with a DSI of 60 days aims to reduce it to 45 days. Which action is most likely to achieve this goal?

Accepted Answer

Implementing a just-in-time (JIT) inventory system

Answer

Increasing production output

Answer

Raising selling prices

Answer

Decreasing marketing spending

Question 31

A company with a high DSI is likely to face which consequence?

Accepted Answer

Increased inventory holding costs

Answer

Lower risk of stockouts

Answer

Increased sales revenue

Answer

Improved customer satisfaction

Question 32

A company with a DSI of 45 days and a cost of goods sold of $2,000,000 wants to determine its approximate average inventory value. What is the calculation?

Accepted Answer

$246,575

Answer

$44,444

Answer

$1,000,000

Answer

$912,500

Question 33

A company implements a new inventory management system that reduces its DSI from 90 days to 60 days. Calculate the percentage change in DSI.

Accepted Answer

33.33% decrease

Answer

50% increase

Answer

33.33% increase

Answer

50% decrease

Question 34

Which scenario would generally result in a higher Days Sales of Inventory (DSI)?

Accepted Answer

A company experiences a surge in demand for its products, but production capacity remains limited.

Answer

A company negotiates lower prices with its suppliers, resulting in lower inventory costs.

Answer

A company implements a just-in-time (JIT) inventory system.

Question 35

A company wants to implement a new inventory management system that aims to reduce its DSI. What is the main benefit of reducing DSI?

Accepted Answer

Reduced inventory holding costs

Answer

Lower production costs

Answer

Increased sales revenue

Answer

Improved customer service

Question 36

A company's Days Sales of Inventory (DSI) has been steadily increasing over the past year. What is the most likely explanation for this trend?

Accepted Answer

The company has experienced a decrease in sales volume.

Answer

The company has expanded its product offerings.

Answer

The company has improved its inventory management processes.

Question 37

Which of the following formulas is used to calculate Days Sales of Inventory (DSI)?

Accepted Answer

(Cost of Goods Sold / 365 days) / Average Inventory

Answer

Cost of Goods Sold / (Average Inventory * 365 days)

Answer

(Average Inventory / 365 days) / Cost of Goods Sold

Question 38

A company has a Cost of Goods Sold of $1,000,000, an average inventory of $200,000, and a 365-day year. What is its DSI?

Accepted Answer

182.5 days

Answer

1,825 days

Answer

91.25 days

Answer

36.5 days

Question 39

What does a high DSI indicate?

Accepted Answer

Excessive inventory levels

Answer

Efficient inventory management

Answer

Short product lifecycles

Answer

High customer demand

Question 40

How can DSI be used to improve inventory management?

Accepted Answer

Identifying slow-moving items and optimizing inventory levels

Answer

Predicting future demand

Answer

Calculating inventory turnover

Question 41

What does the Days Sales of Inventory (DSI) metric measure?

Accepted Answer

The average number of days it takes for a company to sell its inventory.

Answer

The average number of days it takes for a company to order and receive new inventory.

Answer

The average number of days it takes for a company to receive payment from customers.

Question 42

A company has a DSI of 45 days. What does this indicate about their inventory management?

Accepted Answer

The company takes longer than average to sell its inventory.

Answer

The company has a highly efficient inventory management system.

Answer

The company is likely to experience stockouts.

Question 43

Which of the following formulas is used to calculate DSI?

Accepted Answer

DSI = (Average Inventory / Cost of Goods Sold) x 365

Answer

DSI = (Cost of Goods Sold / Average Inventory) x 365

Answer

DSI = Average Inventory / Cost of Goods Sold

Question 44

A company wants to decrease its DSI. Which of the following actions would help achieve this goal?

Accepted Answer

Implement a just-in-time (JIT) inventory system.

Answer

Increase safety stock levels.

Answer

Extend payment terms with suppliers.

Answer

Increase the frequency of ordering new inventory.

Question 45

Which of the following industries is likely to have a relatively low DSI?

Accepted Answer

Fast food restaurant

Answer

Antique bookstore

Answer

Furniture retailer

Answer

Airplane manufacturer

Question 46

What is the relationship between DSI and inventory turnover ratio?

Accepted Answer

They are inversely proportional.

Answer

They are directly proportional.

Answer

There is no relationship between the two.

Answer

DSI is a component of the inventory turnover ratio.

Question 47

A high DSI can indicate which of the following?

Accepted Answer

Slow-moving inventory or overstocking.

Answer

Low storage and obsolescence costs.

Answer

Efficient use of working capital.

Answer

High demand for the company's products.

Question 48

What impact does a decrease in DSI generally have on a company's cash flow?

Accepted Answer

It improves cash flow.

Answer

It worsens cash flow.

Answer

It has no impact on cash flow.

Question 49

When analyzing a company's DSI, it is important to consider:

Accepted Answer

Industry benchmarks and historical trends.

Answer

The number of employees in the sales department.

Answer

The company's marketing budget.

Answer

The company's stock price.

Question 50

Which stakeholders within a company would be interested in monitoring the DSI?

Accepted Answer

Inventory managers, financial analysts, and operations managers.

Answer

Human resources personnel, marketing managers, and customer service representatives.

Answer

Software developers, graphic designers, and content writers.