Question

Exercise 6-49 (Algorithmic)
Analyzing Inventory

Examining the recent financial statements of McLelland Clothing, Inc., you note the following:

Sales	$754,693
Cost of goods sold	506,700
Average inventory	76,900

Required:

Calculate McLelland's gross profit ratio, inventory turnover ratio, and assuming a 365-day year, the average days to sell inventory. (Use two decimal places for gross profit ratio and average days to sell inventory, three decimal places for inventory turnover ratio.)

Gross profit ratio	%
Inventory turnover ratio
Average days to sell inventory	days

Answer 1

The correct answer is :

Gross profit ratio	32.86 %
Inventory turnover ratio	6.589
Average days to sell inventory	55.39 days

Note:

Gross profit = Sales - Cost of goods sold

= $ 754,693 - $ 506,700

= $ 247,993

Gross Profit Ratio =Gross profit / Sales *100

= $ 247,993 / $ 754,693 *100

= 32.86%

Inventory turnover ratio = Cost of goods sold / Average inventory

= 506,700 / 76,900

= 6.589076723

= 6.589

Average days to sell inventory = 365 Days /Inventory turnover ratio

= 365 / 6.589076723

= 55.39471087

= 55.39 days