Question

Exercise 6-12 a The following information is available for Bridgeport Corp. for three recent fiscal years. 2022 2021 2020 Inventory $550,000 $566,000 $346,000 Net sales 1,860,000 1,800,000 1,365,000 Cost of goods sold 1,116,000 957,600 948,000 (a) Calculate the inventory turnover, days in inventory, and gross profit rate for 2022 and 2021. (Round inventory turnover to 1 decimal place, e.g. 5.2, days in inventory to 0 decimal places, e.g. 125 and gross profit rate to 1 decimal place, e.g. 5.2%.)

Answer 1

Answer:

2022

TO: 3.3333

Days Outstanding: 110

Gross profit margin: 40%

2021

TO: 3.947368

Days Outstanding: 92.47

Gross profit margin: 46.8%

Explanation:

2022

$\frac{Sales}{Average Inventory} = Inventory Turnover$

​where:

$Average Inventory=(Beginning Inventory + Ending Inventory)/2$

Sales 1860000

Average Inventory: (550,000 + 566,000)/2 = 558,000

$\frac{1,860,000}{558,000} = Inventory Turnover$

Inventory TO 3.333333333

Days outstanding:

$\frac{365}{Inventory TO} = Days on Inventory$

$\frac{365}{3.33333333333333} = Days on Inventory$

Days on Inventory 110

Gross Profit Margin:

$\frac{gross \: profit}{sales}$

(1,860,000 - 1,116,000)/1,860,000 = 0.40 = 40%

2021

$\frac{Sales}{Average Inventory} = Inventory Turnover$

​where:

$Average Inventory=(Beginning Inventory + Ending Inventory)/2$

Sales 1,800,000

Average Inventory: (566,000 + 346,000)/2 = 456,000

$\frac{1,800,000}{456,000} = Inventory Turnover$

Inventory TO 3.947368

Days outstanding:

$\frac{365}{Inventory TO} = Days on Inventory$

$\frac{365}{3.947368} = Days on Inventory$

Days on Inventory 92.47

Gross Profit Margin:

$\frac{gross \: profit}{sales}$

(1,800,000 - 957,600)/1,800,000 = 0.468 = 46.8%