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Inventory Ratio Calculations McMahan, LTD. provided the following data for 2008 and 2009: Inventory December 31,...

Inventory Ratio Calculations McMahan, LTD. provided the following data for 2008 and 2009: Inventory December 31, 2007 $178,000 December 31, 2008 185,000 December 31, 2009 193,000 Cost of goods sold 2008 $545,000 2009 587,000 Gross margin 2008 $254,000 2009 283,000 Do not round until your final answers. Round all calculations to two decimal places. (a) Calculate the inventory turnover ratio for 2008 and 2009. 2008 Answer times 2009Answer times (b) Calculate the gross margin return on inventory investment for 2008 and 2009. 2008 Answer 2009 Answer (c) Which of the following is an indication that McMahan has become more lean in 2009 than in 2008? For every dollar invested in average inventory it produced more gross margin in 2008 than in 2009. It had a higher inventory turnover in 2009 than in 2008. It had a higher gross margin in 2009 than 2008. Inventory turnover was above the established standard of 3.0 for lean companies. All of the above are signs of having a lean operation.

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Answer #1
Invnetory Turnover ratio:
2008
Costt of goods sold for 2008 545000
Inventory for 2008 185000
Inventory for 2007 178000
Average inventory 181500
Inventory turnover ratio 3.003
(COGS/Average inventory)
2009
Costt of goods sold for 2009 587000
Inventory for 2009 193000
Inventory for 2008 185000
Average inventory 189000
Inventory turnover ratio 3.11
(COGS/Average inventory)
Req b:
Gross profit ratio 2008:
Gross margin 254000
Divide: Sales (545000+254000) 799000
Gross margin ratio 31.79%
Gross profit ratio 2009:
Gross margin 283000
Divide: Sales (587000+283000) 870000
Gross margin ratio 32.53%
Req c:
It had a higher inventory turnover in 2009 thn in 2008
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