Question

Spritzer Company made sales of $34,500 million during 2021. Cost of goods sold for the year totaled $13,800 million. At the end of 2020, Spritzer's inventory stood at $1,300 million, and Spritzer ended 2021 with inventory of $1,700 million. Compute Spritzer's gross profit percentage and rate of inventory turniver for 2021. Begin by computing Spritzer's gross profit percentage for 2021. (Round your answer to the nearest tenth of a percent,

Answer 1

Spritzer Company's gross profit percentage for 2021 is 59.9%. The rate of inventory turnover is 9.2 times, calculated by dividing the cost of goods sold by the average inventory for the year.

Step-by-step explanation:

To calculate Spritzer Company’s gross profit percentage for 2021, we must first determine the gross profit. This is done by subtracting the cost of goods sold from sales:

Gross Profit = Sales - Cost of Goods Sold
= $34,500 million - $13,800 million
= $20,700 million.

Now, we determine the gross profit percentage by dividing the gross profit by sales and then multiplying by 100 to get a percentage:

Gross Profit Percentage = (Gross Profit / Sales) × 100
= ($20,700 million / $34,500 million) × 100
= 59.9%.

Next, we’ll compute the rate of inventory turnover, which measures how often a company’s inventory is sold and replaced over a period. Inventory turnover is calculated by dividing the cost of goods sold by the average inventory for the period.

Average Inventory = (Beginning Inventory + Ending Inventory) / 2
= ($1,300 million + $1,700 million) / 2
= $1,500 million.

Now, we can calculate the inventory turnover rate:

Rate of Inventory Turnover = Cost of Goods Sold / Average Inventory
= $13,800 million / $1,500 million
= 9.2 times.