Question

Tater and pepper corporation reported sales of 23 million. Tater and pepper listed 5.6 million of inventory on its balance sheet. Using a 365-day year, how many days did Tater and pepper's inventory stay on the premises?

Answer 1

To calculate how long Tater and Pepper's inventory stays on the premises, we use the days sales of inventory formula, which is approximately 89 days based on their reported sales and inventory figures.

Step-by-step explanation:

To calculate the number of days Tater and Pepper Corporation's inventory stayed on the premises, we use the concept of inventory turnover and days sales of inventory (DSI). First, we need to calculate the inventory turnover ratio, which is the cost of goods sold divided by the average inventory. However, since we do not have the cost of goods sold, we'll use sales as an approximation which will give us a turnover ratio, but not the exact inventory turnover. The inventory turnover ratio is then used to determine the DSI by dividing the number of days in the year by the turnover ratio.

Assuming sales closely reflect the cost of goods sold, our formula for DSI becomes 365 days divided by the sales to inventory ratio (which in this case, is sales divided by inventory).

DSI = 365 / (Sales / Inventory)
DSI = 365 / (23,000,000 / 5,600,000)
DSI = 365 / 4.107142857
DSI ≈ 88.84 days

Therefore, the inventory of Tater and Pepper Corporation stays on the premises for approximately 89 days.