The following financial information is for Alpha Corporation are for the fiscal

Question

The following financial information is for Alpha Corporation are for the fiscal years ending 2017 & 2016 (all balances are normal): Item/Account 2017 2016 Cash $26,000 $16,000 Accounts Receivable 40,000 50,000 Inventory 30,000 22,000 Current Liabilities 76,000 42,000 Net Sales (all credit) 390,000 360,000 Cost of Goods Sold 270,000 250,000 Use this information to determine for FY 2017:

(Round & enter your answers to one decimal place and enter the value.)

1. the inventory turnover ratio

2. number of days of inventory

3. Gross Profit Margin

Explanation / Answer

Alpha Corporation

Inventory turnover ratio = cost of goods sold/average inventory

Cost of goods sold = $270,000

Average inventory = (beginning inventory + ending inventory)/2

Beginning inventory = $22,000

Ending inventory = $30,000

Average inventory = (22,000 + 30,000)/2 = $26,000

Inventory turnover ratio = 270,000/26,000 = 10.4

Number of days of inventory = number of days in a year/inventory turnover ratio

Inventory turnover ratio = 10.4

Number of days in a year = 365

Number of days of inventory = 365/10.4 = 35 days (approximately)

Gross profit margin = gross profit/sales

Gross profit = net sales – cost of goods sold

Net sales = $390,000

Cost of goods sold = $270,000

Gross profit = $120,000

Gross profit margin = 120,000/390,000 =30.8%

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