Topps Company, Inc.
Harold B. Peterson
ACC 281: Accounting Concepts for Health Care Professionals
A. What was Topps’ inventory turnover ratio and average days to sell inventory for 2006 and 2005? In order for one to completely understand what inventory turnover ratio is, it is important to define it. Inventory turnover ratio is the cost of goods sold divided by inventory (Edmonds, et al., 2007). In 2006, Topps company had a turnover ratio of 5.38, compared to 5.74 in 2005. These figures show that Topps had a better year in 2005. 2006 was the turning year for Topps’, it was a restructured era for the company. In 2005 the consolidated gross profit as a percentage of net sales was 35.7% up from 35.2% in 2004.
B. Is the company’s management of inventory getting better or worse? A company such as Topps will use these ratios to determine the average number of days it took to sell their inventory. The average days in inventory is calculated by dividing 365 by the inventory turnover (Edmonds, et al., 2007). Using the above turnover ratios, Topps' average days in inventory for 2006 was 68 days, and 64 days in 2005. According to these figures, it shows that in 2006 it took Topps Company four days longer to sell their product than in 2005. This is an indication that the management of inventory is getting worse.
C. What cost flow method(s) did Topps use to account for inventory? The cost flow method(s) Topps used was FIFO (first in, first out). Topps uses the First-in, First-out (FIFO) method. This method “treats the first items purchased as the first items...