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Principles of Accounting Volume 1

19th Edition
OpenStax
Publisher: OpenStax College
ISBN: 9781947172685

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FindFindarrow_forward

Principles of Accounting Volume 1

19th Edition
OpenStax
Publisher: OpenStax College
ISBN: 9781947172685
Chapter 10, Problem 16PA
Textbook Problem
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Use the following information relating to Clover Company to calculate the inventory turnover ratio, gross margin, and the number of days’ sales in inventory ratio, for years 2022 and 2023.

Chapter 10, Problem 16PA, Use the following information relating to Clover Company to calculate the inventory turnover ratio,

To determine

Concept introduction:

Gross Margin or Gross Profit is the difference between the sales revenue and cost of goods sold. The formula to calculate the Gross Margin is as follows:

Gross Margin = Sales Revenue −Cost of Goods sold

Inventory Turnover Ratio:

Inventory Turnover Ratio measures the efficiency of the company in converting its inventory into sales. It is calculated by dividing the Cost of goods sold by Average inventory. The formula of the Inventory Turnover Ratio is as follows:

Inventory Turnover Ratio=Cost of goods soldAverage inventory

Note: Average inventory is calculated with the help of following formula:

Average inventory=(Beginning inventory + Ending inventory)2

Day’s sales in inventory:

Days sales in inventory represent the number of days the inventory waits for the sale. It is calculated using the following formula:

Day Sales in Inventory =  Inventory ×365Cost of Goods Sold 

To calculate:

The Gross Margin, Inventory Turnover Ratio and Number of Day’s sales in inventory ratio for Year 2022 and 2023

Explanation of Solution

The Gross Margin, Inventory Turnover Ratio and Number of Day’s sales in inventory ratio for Year 2022 and 2023 are calculated as follows:

Year 2022 Year 2023
Sales (A) $ 295,000 $ 323,000
Cost of Goods Sold (B) $ 221,250 $ 242,250
Gross Marg...

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Chapter 10 Solutions

Principles of Accounting Volume 1
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Ch. 10 - Which of the following describes features of a...Ch. 10 - Which of the following financial statements would...Ch. 10 - Which of the following would cause periodic ending...Ch. 10 - Which of the following indicates a positive trend...Ch. 10 - What is meant by the term gross margin?Ch. 10 - Can a business change from one inventory costing...Ch. 10 - Why do consignment arrangements present a...Ch. 10 - Explain the difference between the terms FOB...Ch. 10 - When would a company use the specific...Ch. 10 - Explain why a company might want to utilize the...Ch. 10 - Describe the goal of the lower-of-cost-or-market...Ch. 10 - Describe two separate and distinct ways to...Ch. 10 - Describe costing inventory using first-in,...Ch. 10 - Describe costing inventory using last-in,...Ch. 10 - Describe costing inventory using weighted average....Ch. 10 - How long does it take an inventory error affecting...Ch. 10 - What type of issues would arise that might cause...Ch. 10 - Explain the difference between the flow of cost...Ch. 10 - 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