# Use the following information relating to Medinas Company to calculate the inventory turnover ratio, gross margin, and the number of days’ sales in inventory ratio, for years 2022 and 2023.

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### Principles of Accounting Volume 1

19th Edition
OpenStax
Publisher: OpenStax College
ISBN: 9781947172685

#### Solutions

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FindFindarrow_forward

### Principles of Accounting Volume 1

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

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) $90,000$ 100,000 Cost of Goods Sold (B) $63,000$ 70,000 Gross Margi...

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