Question

The following information is available for MVF Company(dollar amounts are in millions)

2016 2015 2014 2013
Net sales $23.2 $21.7 $19.6 $17.4
Cost of goods sold 17.1 16.8 15.2 13.5
Beginning finished
goods inventory 2.3 2.1 1.9 1.5
Ending finished goods
inventory 2.9 2.3 2.1 1.9
Materials purchased 10.6 8.8 7.5 7.1

a. Calculate the following ratios for each year: Gross profit percentage. Inventory turnover Cost of materials purchased to cost of finished goods produced.
b. Analyze the results obtained in 3.a. above: Describe the change in each ratio you observe in 2016. Discuss at least two possible causes of each change observed.

Answer 1

The calculations cover gross profit percentage, inventory turnover, and cost of materials to finished goods ratio for each year. The gross profit percentage is the ratio of gross profit to net sales, inventory turnover shows how quickly inventory is sold, and the cost of materials to finished goods ratio compares the cost of materials purchased to the cost of goods produced.

Step-by-step explanation:

To answer the student's question, we need to calculate the gross profit percentage, inventory turnover, and the cost of materials purchased to cost of finished goods produced for each of the years provided.

Gross Profit Percentage

Gross Profit = Net Sales - Cost of Goods Sold
Gross Profit Percentage = (Gross Profit / Net Sales) x 100

Inventory Turnover

Inventory Turnover = Cost of Goods Sold / Average Inventory
Average Inventory = (Beginning Finished Goods Inventory + Ending Finished Goods Inventory) / 2

Cost of Materials Purchased to Cost of Finished Goods Produced

Cost of Finished Goods Produced = Cost of Goods Sold + Ending Finished Goods Inventory - Beginning Finished Goods Inventory

Ratio = Cost of Materials Purchased / Cost of Finished Goods Produced

We can now calculate each ratio for the years 2016, 2015, 2014, and 2013.

For the firm mentioned in the self-check question with sales revenue of $1 million, the accounting profit would be calculated by subtracting the costs of labor, capital, and materials from the sales revenue. So accounting profit = $1,000,000 - ($600,000 + $150,000 + $200,000) = $1,000,000 - $950,000 = $50,000.

Answer 2

2016 2015 2014 2013

gross profit% 26.29% 22.58% 22.45% 22.41%

Inventory turnover 6.58 7.64 7.6 7.94

cost of material % 59.89% 51.76% 89.82% 51.10

b. gross% has increased this may be due to a high demand, and intense marketing.

inventory turnover has decreased this may be due to new competition, or introduced product(new product)

cost of material purchased % it has increased in 2016, this may be due to increased production and effective use of material.

Step-by-step explanation:

gross profit % =gross profit/ sales

gross profit = sales less cost of sales

inventory turnover = cost of sales / average inventory

average inventory = (opening inventory + closing inventory )/2

cost of material purchased/ cost of finished goods

finished goods = cost of sales + closing - opening goods