Tops N Bottoms Corp. reported sales for 2013 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?

Question

Quizplus · Accepted Answer

Inventory turnover = Sales / Average Inventory

Average Inventory = (Beginning Inventory + Ending Inventory) / 2

Beginning Inventory = $4 million

Ending Inventory = ?

Inventory Turnover = 12.5 times per year

Therefore, Sales = Inventory Turnover x Average Inventory

$50 million = 12.5 x ((Beginning Inventory + Ending Inventory) / 2)

$4 million + Ending Inventory = $50 million / 6.25

Ending Inventory = $8 million

Days' Inventory on Hand (DIH) = (Ending Inventory / Cost of Sales) x 365

Cost of Sales = Sales - Gross Profit = $50 million - $x (let x be the Gross Profit)

Gross Profit = Sales - Cost of Goods Sold = Sales - (Beginning Inventory - Ending Inventory)

Gross Profit = $50 million - ($4 million - $8 million) = $54 million

Cost of Sales = $50 million - $54 million = -$4 million (which doesn't make sense)

Therefore, there must be an error in the information provided. None of the answer choices accurately reflect the calculations.