Inventory Ratio Calculations McMahan, LTD. provided the following data for 2013

Question

Inventory Ratio Calculations

McMahan, LTD. provided the following data for 2013 and 2014:

Do not round until your final answers. Round all calculations to two decimal places.

(a) Calculate the inventory turnover ratio for 2013 and 2014.
2013

2014

(b) Calculate the gross margin return on inventory investment for 2013 and 2014.
2013

2014

Inventory December 31, 2012 $ 176,000 December 31, 2013 185,000 December 31, 2014 194,000 Cost of goods sold 2013 $ 586,000 2014 629,000 Gross margin 2013 $ 256,000 2014 287,000

Explanation / Answer

inventory turnover ratio means how much inventory is sold during the period .It is calculated as follow

inventory turnover ratio =Cost of good sold/ Invetory

gross margin return on inventory investment = Gross margin / Average inventory

Calculation for gross margin return on inventory investment for 2013 and 2014. is as under

For the year 2013 Inventory Amount in $ 31-Dec-12 176,000 31-Dec-13 185,000 Total 361,000 Average invetory    (A) 180500 Cost of goods sold (B) 586,000 Iinventory turnover ratio   (B)/ (A) 3.246537396

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