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Inventory Analysis
Singleton Inc. reported the following information for the current year:
Required:
Compute Singleton’s (a) gross profit ratio, (b) inventory turnover ratio, and (c) average days to sell inventory. (Note: Round all answers to two decimal places.)
Concept introduction:
Gross Profit ratio:
Gross profit ratio is calculated by dividing the gross profit by sales. The formula to calculate the gross profit ration is as follows:
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:
Note: Average inventory is calculated with the help of following formula:
To calculate:
The Gross Profit Ratio, Inventory Turnover ratio, and Average days to sell inventory.
The Gross Profit Ratio, Inventory Turnover ratio, and Average days to sell inventory are calculated as follows:
| Gross Profit (A) | $ 155,000 |
| Sales (B) | $ 650,000 |
| Gross Profit Ratio (A/B) | 23.85% |
| Cost of Goods Sold (C) | $ 495,000 |
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