Payless ShoeSource and Dillard’s both offer men’s formal footwear. Payless offers lower- to middle-priced footwear, whereas Dillard’s offers more specialized, higher-end footwear. The average price for a pair of shoes in Payless may be about $50, whereas the average price in Dillard’s may be about $175. The types of shoes offered by Dillard’s are not sold by many other stores. Suppose a Payless store and a Dillard’s store report the following amounts for men’s shoes in the same year (company names are disguised):                                          Company 1         Company 2Net sales                              $200,000            $200,000Cost of goods sold                130,000              165,000Gross profit                          $ 70,000             $ 35,000Average inventory                $ 35,000             $ 20,000Required:1. For Company 1 and Company 2, calculate the inventory turnover ratio.2. For Company 1 and Company 2, calculate the gross profit ratio.3. After comparing the inventory turnover ratios and gross profit ratios, which company do you think is Payless and which is Dillard’s? Explain.

Question

Payless ShoeSource and Dillard’s both offer men’s formal footwear. Payless offers lower- to middle-priced footwear, whereas Dillard’s offers more specialized, higher-end footwear. The average price for a pair of shoes in Payless may be about $50, whereas the average price in Dillard’s may be about $175. The types of shoes offered by Dillard’s are not sold by many other stores. Suppose a Payless store and a Dillard’s store report the following amounts for men’s shoes in the same year (company names are disguised):

                                          Company 1         Company 2
Net sales                              $200,000            $200,000
Cost of goods sold                130,000              165,000
Gross profit                          $ 70,000             $ 35,000
Average inventory                $ 35,000             $ 20,000

Required:
1. For Company 1 and Company 2, calculate the inventory turnover ratio.
2. For Company 1 and Company 2, calculate the gross profit ratio.
3. After comparing the inventory turnover ratios and gross profit ratios, which company do you think is Payless and which is Dillard’s? Explain.

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