Question

The following information pertains to two competitors, Superior Inc. and Michigan Corp.

Company		Beginning Inventory		Ending Inventory		Cost of Goods Sold
Superior Inc.		$172,000		$144,000		$1,237,626
Michigan Corp.		$425,000		$453,000		$2,267,304

Superior Inc. reported sales revenues of $1,599,000, and Michigan Corp. reported sales revenue of $3,354,000.

a. Calculate the inventory turnover ratio for Superior and Michigan. (Round answers to 1 decimal place, e.g. 10.5.)

		Superior Inc.		Michigan Corp.
Inventory turnover ratio		times		times

  

b. Calculate the gross margin and gross margin ratio for Superior and Michigan. (Round gross margin ratio to 1 decimal place, e.g. 10.5%.)

		Superior Inc.			Michigan Corp.
Gross margin		$Enter a dollar amount.			$Enter a dollar amount.
Gross margin ratio		Enter percentages rounded to 1 decimal place.	%		Enter percentages rounded to 1 decimal place.	%

Answer 1

a. Inventory turnover ratio

= Cost of goods sold / Average Inventory

Superior Inc:

= $1,237,626 / ( $172,000 + $144,000 / 2 )

= $1,237,626. / $ 158,000

= 7.8 times

Michigan Corp.

= $2,267,304 /. ( $425,000 + $453,000 / 2 )

= $2,267,304 / $ 439,000

= 5.2 times.

b. Gross margin

= Sales - Cost of goods sold.

Gross margin ratio

= Gross margin / sales * 100%

Superior Inc:

Gross margin

= $1,599,000 - $1,237,626

= $ 361,374

Gross margin ratio

= $ 361,374 / $ 1,599,000

= 22.6%

Michigan Corp.

Gross margin

= $3,354,000. - $2,267,304

= $ 1,086,696

Gross margin ratio

= $ 1,086,696 / $ 3,354,000

= 32.4%