Asset Management Ratios Tops N Bottoms Corp. reported sales for 2008 of $50 million. Tops N Bottoms listed $4 million of inventory on its balance sheet. Using a 365-day year, how many days did Tops N Bottoms' inventory stay on the premises? How many times per year did Tops N Bottoms' inventory turn over?
A) 29.2 days, 12.5 times, respectively
B) 12.5 days, 29.2 times, respectively
C) 0.08 days, 12.5 times, respectively
D) 29.2 days, 0.0345 times, respectively

Question

Quizplus · Accepted Answer

To find out how many days Tops N Bottoms' inventory stayed on the premises, we use the formula:

Inventory turnover = Cost of goods sold / Average inventory

To calculate the average inventory, we can simply divide the ending inventory by 2, as it is the average of the beginning and ending inventory:

Average inventory = ($4 million + $4 million) / 2 = $4 million

Using the formula above, we can calculate the inventory turnover:

Inventory turnover = $50 million / $4 million = 12.5 times

To find out how many days on average the inventory stayed on the premises, we use the formula:

Days in inventory = 365 days / Inventory turnover

Days in inventory = 365 days / 12.5 times = 29.2 days

Therefore, the best choice is A, with 29.2 days and 12.5 times, respectively.