Use the inventory turnover retio end gross profit rabo to analyze companies (LO6–7)
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 war (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.
Want to see the full answer?
Check out a sample textbook solutionChapter 6 Solutions
Financial Accounting
- 1. What is the company’s gross profit rate beginning January 1, 2021?* 17% 20% 21% 24% None of the choices 2. How much is the inventory fire loss?* 146,920 183,640 189,400 254,000 None of the choicesarrow_forwardThe Company uses lower-of-cost-or-market approach. The replacement cost of an inventory item is $75. Net realizable value is $82.50. Net realizable value less a normal profit margin is $69. The cost of the item is $76.50. The inventory item would be valued at:arrow_forwardIf the company had used the FIFO inventory costing method, cost of goods sold under FIFO would have been $ 10,200.00. Management wants a report that shows how changing from FIFO to another method would change net income. Prepare a table showing (1) the amount by which cost of goods sold under LIFO and AVCO is different from the FIFO cost of goods sold and ( 2) the effect on net income when LIFO and AVCO are used instead of FIFO. When costs are rising, what is the effect of the FIFO inventory valuation approach on cost of goods sold, gross profit and net income? Why?arrow_forward
- Beg Inv @ cost $11,160 Net Additional markups $600 Sales $94,056 Purchases @ retail $92,400 Freight-in $840 Beg Inv @ retail $18,000 Purchases @ cost $54,600 Net markdowns $1,144 6. If Ending Inv at retail had been found to be $16,000 (it wasn't pretend it was) then using the correct cost ratio, what amount of inventory would show up on the balance sheet assuming they are using the Average Cost Method? Question 5 isn't revelent for this question, they didn't have any transfers for this question Thank you Brendaarrow_forwardQ1. As of December 321, 2021, Earth Mother’s Corporation physical inventory was $275,000, and its book inventory was $290,000. The effect of the inventory shrinkage on the accounts is: A. To increase Cost of Goods Sold and Inventory by $15,000 B. To increase Cost of Goods Sold and decrease Inventory by $15,000 C.To decrease Cost of Good Sold and increase Inventory by $15,000 D. To decrease Cost of Goods Sold and Inventory by $15,000arrow_forwardAnswer the Question based the data given below ; OPENING STOCK OMR 25000 CLOSING STOCK OMR 35000 NET PURCHASES OMR 130000 MANUFACTURING EXPENSES OMR 30000. What will be the inventory turnover ratio? a. 6 b. 4 c. 4.5 d. 5arrow_forward
- Ma3. Hall Inc. has beginning inventory of 100,000 units (cost of $15 per unit) accounted for using the LIFO inventory method. During the year, the company sold more items than purchased, causing the ending inventory balance to drop to 65,000 units. Assuming a tax rate of 25%, and a current replacement cost of inventory of $28 per unit, what is the LIFO liquidation effect on after-tax income? Select one: a. $341,250 b. $455,000 c. $633,750 d. $113,750arrow_forwardP8.6 (LO 3) (Compute FIFO, LIFO, Average-Cost—Periodic and Perpetual) Ehlo Company is a multi product firm. Presented below is information concerning one of its products, the Hawkeye. Date Transaction Quantity Price/Cost 1/1 Beginning inventory 1,000 $12 2/4 Purchase 2,000 18 2/20 Sale 2,500 30 4/2 Purchase 3,000 23 11/4 Sale 2,200 33 Instructions Compute ending inventory AND cost of goods sold, assuming Ehlo uses: Perpetual system, LIFO cost flow. Periodic system, weighted-average cost flow. Perpetual system, moving-average cost flow.arrow_forwardBI 420 $200 Sold 150 $401 Pur. 250 $205 Sold 275 $421 Pur. 200 $215 Sold 260 $441 EI 185 PB10. LO 10.3Calculate a) cost of goods sold, b) ending inventory, and c) gross margin for B76 Company, considering the following transactions under three different cost allocation methods and using perpetual inventory updating. Provide calculations for Weighted Average.arrow_forward
- 30.Banana Company uses the retail method of inventory valuation. The following information is available:Beginning inventory: P186,196 at cost; P302,250 at retailPurchases: P703,740 at cost; P1,120,000 at retailFreight in: P12,400Purchase discounts: P14,400Purchase returns: P25,050 at cost; P48,300 at retailNet additional markups – P100,000 Net markdowns – P205,000Sales revenue – P900,000What is the estimated cost of the ending inventory using FIFO retail? a. 368,950 b. 258,265 c. 250,886 d. 258,625arrow_forward(do not provide image in solution) Suppose that the following information is available for Nike Inc. for the current year. Beginning inventory Ending inventory Cost of goods sold Net sales Inventory turnover Days in inventory $11,570 Gross profit rate 14,360 Calculate the inventory turnover, days in inventory, and gross profit rate for Nike Inc. for the current year. (Round gross profit rate to 2 decimal places, eg. 12.51 and other answers to 1 decimal place, e.g. 15.2. Use 365 days for calculation.) 103,720 145,200 times days %arrow_forward
- Financial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage LearningCollege Accounting, Chapters 1-27AccountingISBN:9781337794756Author:HEINTZ, James A.Publisher:Cengage Learning,