Problem 2 Anderson Inc. has the following information for 2015 for its three dep
ID: 2454123 • Letter: P
Question
Problem 2
Anderson Inc. has the following information for 2015 for its three departments:
Dept. #1
Dept. #2
Dept. #3
Sales
150,000
195,000
278,000
Cost of Goods Sold
78,000
84,500
205,000
Average Inventory
13,000
9,400
68,350
Required:
Calculate the following for each department:
Gross Margin
Inventory Turnover
Average Days in Inventory
Gross Margin Return on Investment (GMROI)
Based on your calculations, which department is doing better?- Must show all calculations
Dept. #1
Dept. #2
Dept. #3
Sales
150,000
195,000
278,000
Cost of Goods Sold
78,000
84,500
205,000
Average Inventory
13,000
9,400
68,350
Explanation / Answer
Dept 1 Dept 2 Dept 3
Gross margin 150000-78000 / 150000 195000-84500 / 195000 278000-205000 / 278000
= 48% = 56.67% =26.26%
Inventory Turnover 78000 / 13000 84500 / 9400 205000 /68350
=6 = 8.99 =2.99
Average Days in
Inventory 365 / 6 365/ 8.99 365 / 2.99
= 61 days =41days =122 days
GMROI 72000 / 13000 110500 / 9400 73000 / 68350
= 5.54 =11.76 =1.07
As per calculation done above , Dept .B is doing better among other departments.
Notes : gross margin = Net sales - Cost of goods sold / net sales
Inventory Turnover = Cost of goods sold / average inventory
Average days in Inventory = 365/ inventory turnover
Gross Margin Return on Investment (GMROI) = Net sales - cost of goods sold / Average inventory
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