Question

Margaret Company reported the following information for the current​ year: Net sales ​$3,000,000 Purchases ​$1,957,000 Beginning Inventory ​$245,000 Ending Inventory ​$115,000 Cost of Goods Sold ​65% of sales Industry Averages available​ are: Inventory Turnover 5.29 Gross Profit Percentage ​28% How do the inventory turnover and gross profit percentage for Margaret Company compare to the industry averages for the same​ ratios? (Round inventory turnover to two decimal places. Round gross profit percentage to the nearest​ percent.)

Answer 1

10.84 times

Step-by-step explanation:

The computation of inventory turnover is shown below:-

Gross Profit Percentage = Gross Profit ÷ Net Sales × 100

Gross Profit = Sales - Cost of Goods Sold

= $3,000,000 × 65%

Cost of goods sold = $1,950,000

Gross Profit = $3,000,000 - $1,950,000

= $1,050,000

Gross Profit Percentage = $1,050,000 ÷ $3,000,000 × 100

= 35%

Inventory Turnover = Cost of Goods Sold ÷ Average Inventory

= ($245,000 + $115,000) ÷ 2

Average Inventory = $180,000

Inventory Turnover = Cost of goods sold ÷ Average inventory

= $1,950,000 ÷ $180,000

= 10.84 times