Baskin-Robbins is one of the world’s largest specialty ice cream shops. The comp

Question

Baskin-Robbins is one of the world’s largest specialty ice cream shops. The company offers dozens of different flavors, from Very Berry Strawberry to lowfat Espresso ’n Cream. Assume that a local Baskin-Robbins in Raleigh, North Carolina, has the following amounts for the month of July 2015.

Prepare a multiple-step income statement for the month ended July 31, 2015.

Calculate the inventory turnover ratio for the month of July.

Would you expect this ratio to be higher or lower in December 2015?

Calculate the gross profit ratio for the month of July.

  Salaries expense $12,800      Sales revenue $65,300   Inventory (July 1, 2015) 1,850      Interest income 2,400   Sales returns 1,100      Cost of goods sold 28,250   Utilities expense 3,150      Rent expense 5,800   Income tax expense 5,100      Interest expense 400         Inventory (July 31, 2015) 1,100

Explanation / Answer

Prepare a multiple-step income statement for the month ended July 31, 2015.   

Calculate the inventory turnover ratio for the month of July.

Inventory Turnover ratio = Cosy of goods sold/Average inventory = 28,250/(1,100+1,850)/2 = 28,250/1,475 = 19.15 TIMES

Would you expect this ratio to be higher or lower in December 2015?

Seeing the trend inventory at the end of Decemebr 2015 wil be lower

July 31 ending inventory will become december beginning inventory and on seeing that company is stocking less inventory so seeing this lower ending inventory ratio will be lower .

Calculate the gross profit ratio for the month of July.

Gross Profit = Gross Profit/Net sales = 35,950/64,200 = 0.56

Baskin Robbins Multiple-step Income Statement For the month of July Sales Revenue Sales Revenue 65,300 Less:Sales return -1,100 Net sales 64,200 Cost of Goods Sold -28,250 Gross Profit 35,950 Operating Expenses Salaries Expense 12,800 Utilities Expense 3,150 Rent Expense 5,800 Total operating Expenses 21,750 Operating income 14,200 Non Operating items: Interest ncome 2,400 Interest Expense -400 2,000 Income before income taxes 12,200 Income tax expense 5,100 Net income 7,100

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