Asked by Ambriel Andrzejewski on Jul 09, 2024
Verified
Selected data for Irma's Store appear below.
20172016 Net sales $800,000$520,000 Cost of goods sold 600,000345,000 Inventory at end of year 65,00085,000 Accounts receivable at end of year 140,000110,000\begin{array} { l r r } & { 2017 } & { 2016 } \\\text { Net sales } & \$ 800,000 & \$ 520,000 \\\text { Cost of goods sold } & 600,000 & 345,000 \\\text { Inventory at end of year } & 65,000 & 85,000 \\\text { Accounts receivable at end of year } & 140,000 & 110,000\end{array} Net sales Cost of goods sold Inventory at end of year Accounts receivable at end of year 2017$800,000600,00065,000140,0002016$520,000345,00085,000110,000 Instructions
Compute the following for 2017:
(a) Gross profit rate.
(b) Inventory turnover.
(c) Accounts receivable turnover.
Inventory Turnover
A proportion indicating the frequency at which a company's stock is sold and replenished during a given timeframe.
Gross Profit Rate
A financial metric that indicates the percentage of revenue that exceeds the cost of goods sold, reflecting a company's operational efficiency.
Accounts Receivable Turnover
A financial metric indicating how many times a company collects its average accounts receivable balance in a period.
- Administer calculations and interpretive analyses of various financial ratios, with emphasis on liquidity, solvency, and profitability figures.
- Analyze turnover ratios and appreciate their significance on the management of business operations.
Verified Answer
Gross profit = Net Sales − Cost of goods sold =$800,000−$600,000=$200,000\begin{aligned}\text { Gross profit } & = \text { Net Sales } - \text { Cost of goods sold } \\& = \$ 800,000 - \$ 600,000 \\& = \$ 200,000\end{aligned} Gross profit = Net Sales − Cost of goods sold =$800,000−$600,000=$200,000
Gross profit rate = Gross profit ÷ Net sales =$200,000÷$800,000=25%\begin{aligned}\text { Gross profit rate } & = \text { Gross profit } \div \text { Net sales } \\& = \$ 200,000 \div \$ 800,000 \\& = 25 \%\end{aligned} Gross profit rate = Gross profit ÷ Net sales =$200,000÷$800,000=25%
(b)
Inventory turnover = Cost of goods sold ÷ Average inventory =$600,000÷[($65,000+$85,000)÷2]=8 times \begin{aligned}\text { Inventory turnover } & = \text { Cost of goods sold } \div \text { Average inventory } \\& = \$ 600,000 \div [ ( \$ 65,000 + \$ 85,000 ) \div 2 ] \\& = 8 \text { times }\end{aligned} Inventory turnover = Cost of goods sold ÷ Average inventory =$600,000÷[($65,000+$85,000)÷2]=8 times
(c)
Accounts receivable turnover = Net credit sales ÷ Average accounts receivable =$800,000÷[($140,000+$110,000)÷2]=$800,000÷$125,000=6.4 times \begin{aligned}\text { Accounts receivable turnover } & = \text { Net credit sales } \div \text { Average accounts receivable } \\& = \$ 800,000 \div [ ( \$ 140,000 + \$ 110,000 ) \div 2 ] \\& = \$ 800,000 \div \$ 125,000 \\& = 6.4 \text { times }\end{aligned} Accounts receivable turnover = Net credit sales ÷ Average accounts receivable =$800,000÷[($140,000+$110,000)÷2]=$800,000÷$125,000=6.4 times
Learning Objectives
- Administer calculations and interpretive analyses of various financial ratios, with emphasis on liquidity, solvency, and profitability figures.
- Analyze turnover ratios and appreciate their significance on the management of business operations.
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