ACC281: Accounting Concepts for Health Care Professionals
Instructor: Susan Paris
April 23, 2012
Inventory turnover ratio is the cost of goods sold to inventory that indicates how many times a year the average inventory is sold (Edmonds, Thomas. (2009). Which would be the sales divided by the ending inventory. The turnover ratio is used to find the number of times an inventory is turned over. In other words this means the number of times the inventory is sold out and will need to be replaced with new inventory in the business. What was Topps Company’s inventory turnover ratio and average days to sell inventory for 2006 and 2005? In order to find out the turnover ratio you must use:Cost of goods sold / Average Inventory = Inventory Turnover Ratio divided by 2. The company had made an investment that had a zero rate of return. Topps Company had a turnover ratio of 5.74 times in the year of 2005 and 5.68 times in the year of 2006.
Is the company’s management of inventory getting better or worse? It seems as if it is getting worse. The inventory turned over 5.74 times in 2005 and only 5.68 times in 2006. Inventory was held on average 63.59 days in 2005 but increased to 64.26 days in 2006.
What cost flow method did Topps use to account for inventory? They used the first in first out flow method also known as the FIFO method. This method is the inventory cost flow method that treats the first items purchased as the first items sold for the purpose of computing cost of goods sold (Edmonds, Thomas. (2009).
Edmonds, Thomas. (2009) Survey of Accounting, 2nd Edition, 2nd Edition. McGraw-Hill Primis Custom Publishing.