Margaret Company reported the following information for the current year: Net sa
ID: 2411474 • Letter: M
Question
Margaret Company reported the following information for the current year: Net sales Purchases Beginning Inventory Ending Inventory Cost of Goods Sold $2,700,000 $1,551,000 $275,000 $145,000 45% of sales Industry Averages available are Inventory Turnover Gross Profit Percentage 5.2 58 How do the inventory turnover and gross profit percentage for Margaret Company compare to the industry averages for the same ratios? (Round inventory turnover to two decimal places. Round gross profit percentage to the nearest percent.) Select one A. Margaret Company has superior gross profit percentage and inventory turnover B. Margaret Company has inferior gross profit percentage and superior inventory turnover. C. Margaret Company has inferior gross profit percentage and inventory turnover D. Margaret Company has superior gross profit percentage and inferior inventory turnoverExplanation / Answer
Answer:
Option B is Correct.
Gross Profit Percentage = Gross Profit / Net Sales * 100
Gross Profit = Sales – Cost of Goods Sold
Cost of Goods Sold = $2,700,000 * 45%
Cost of Goods Sold = $1,215,000
Gross Profit = $2,700,000 - $1,215,000
Gross Profit = $1,485,000
Gross Profit Percentage = 1,485,000 / 2,700,000 * 100
Gross Profit Percentage = 55%
Inventory Turnover = Cost of Goods Sold / Average Inventory
Average Inventory = (275,000 + 145,000) / 2
Average Inventory = $210,000
Inventory Turnover = 1,215,000 / 210,000
Inventory Turnover = 5.79 times
Conclusion:
Margaret Company has inferior Gross Profit percentage and superior Inventory Turnover.