Question

Lemony Company made sales of $38,000 million during 2018. Cost of goods sold for the year totaled $16,340 million. At the end of 2017, Lemony’s inventory stood at $1,800 million, and Lemony ended 2018 with inventory of $2,000 million. Compute Lemony’s gross profit percentage and rate of inventory turnover for 2018.Begin by computing Lemony’s gross profit percentage for 2018.

Answer 1

Answer:

Gross profit = 57%

Inventory turnover  = 8.60 Times

Explanation:

The gross profit percentage can be calculated by dividing the gross profit by sales. Inventory turnover can be calculated by dividing the cost of goods sold by the average inventory, in this case average inventory is not given in the question. Average inventory can be calculated by dividing the sum of opening and closing inventory with 2.

Gross profit =  (Sales - Cost of goods sold) / Sales x 100

Gross profit = (38,000 - 16,340) /38000 x 100%

Gross profit = 21,660/38,000 x 100

Gross profit = 57%

Inventory turnover = Cost of goods sold / Average inventory

Inventory turnover = 16340/1900

Inventory turnover  = 8.60 Times

Average inventory = (1800 + 2000) /2

Average inventory = 1900 Million