Question

The following information is available for Larkspur, Inc. for three recent fiscal years. 2022 2021 2020 Inventory $570,000 $580,000 $330,000 Net sales 1,875,000 1,750,000 1,350,000 Cost of goods sold 1,207,500 1,001,000 939,000 (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%.) 2022 2021 Inventory Turnover enter an inventory turnover times enter an inventory turnover times Days in Inventory enter a number of days days enter a number of days days Gross Profit Rate enter percentages % enter percentages %

Answer 1

Answer:

2020

Inventory TO 2.2

Days on Inventory 166

Gross profit margin: 42.8%

2021

Inventory TO 2.1

Days on Inventory 174

Gross profit margin:  35.6%

Explanation:

Inventory $570,000 $580,000 $330,000

Net sales 1,875,000 1,750,000 1,350,000

Cost of goods sold 1,207,500 1,001,000 939,000

2020:

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

​where:

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

COGS 1,001,000

beginning 330,000

ending 580,000

$Average Inventory=330000 + 580000)/2$

Inventory 455000

$\frac{1001000}{455000} = Inventory Turnover$

Inventory TO 2.2

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

$\frac{365}{2.2} = Days on Inventory$

Days on Inventory 166

Gross profit margin:

sales less COGS divided over sales:

(1,750,000 - 1,001,000) / 1,750,000 = 0.428 = 42.8

2021

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

​where:

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

COGS 1,207,500

beginning 580,000

ending 570,000

$Average Inventory=580000 + 570000)/2$

Inventory 575000

$\frac{1207500}{575000} = Inventory Turnover$

Inventory TO 2.1

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

$\frac{365}{2.1} = Days on Inventory$

Days on Inventory 174

Gross profit margin:

sales less COGS divided over sales:

(1,875,000 - 1,207,500) / 1,875,000 = 0,356‬ = 35.6%