The following are sales, cost of sales, and inventory data for a company, a whol
ID: 2425466 • Letter: T
Question
The following are sales, cost of sales, and inventory data for a company, a wholesale distributor of car accessories. Dollar amounts are in millions.
2014
2013
2012
2011
Sales
102.8
92.8
88.4
79.6
Cost of sales
82.8
77.2
70.8
64.0
Beginning inventory
10.0
8.4
8.6
7.2
Ending inventory
12.6
10.2
9.4
8.6
.
Required
For each year, calculate the following ratios (1) Gross margin as a percentage of sales and (2) Inventory turnover
2014
2013
2012
2011
Sales
102.8
92.8
88.4
79.6
Cost of sales
82.8
77.2
70.8
64.0
Beginning inventory
10.0
8.4
8.6
7.2
Ending inventory
12.6
10.2
9.4
8.6
Explanation / Answer
Gross margin as a percentage of sales=
(Net sales - Cost of goods sold) / Net sales
(102.8-82.8)/102.8
=0.1945 or 19.45%
(92.8-77.2)/92.8
=0.1681 or 16.81%
(88.4-70.8)/88.4
=0.1990 or 19.90%
(79.6-64.0)/79.6
=0.1959 or 19.59%
Inventory turnover =
Cost of Goods Sold ÷ Average Inventory
82.8/ ((10.0+12.6)/2)
=7.32 Times
8.4+10.2) / 2)
=8.30 Times
70.8 / ((8.6+9.4) /2)
=7.86 Times
64.0 / ((7.2+8.6)/2)
= 8.10 Times
Formula 2014 2013 2012 2011Gross margin as a percentage of sales=
(Net sales - Cost of goods sold) / Net sales
(102.8-82.8)/102.8
=0.1945 or 19.45%
(92.8-77.2)/92.8
=0.1681 or 16.81%
(88.4-70.8)/88.4
=0.1990 or 19.90%
(79.6-64.0)/79.6
=0.1959 or 19.59%
Inventory turnover =
Cost of Goods Sold ÷ Average Inventory
82.8/ ((10.0+12.6)/2)
=7.32 Times
77.2 / ((8.4+10.2) / 2)
=8.30 Times
70.8 / ((8.6+9.4) /2)
=7.86 Times
64.0 / ((7.2+8.6)/2)
= 8.10 Times
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