Asset Management Ratios 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 turnover?
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

Inventory turnover = Cost of goods sold / Average inventory
Since we don't have the cost of goods sold, we can use the formula:
Inventory turnover = Sales / Inventory

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

Days inventory held = 365 / Inventory turnover
Days inventory held = 365 / 12.5 = 29.2 days

Therefore, the answer is A, with 29.2 days and 12.5 times turnover.