Question

Truman Co. sells a large number of common household items, while Stapleton sells a small number of expensive items. The two companies report the same dollar amount for ending inventory and gross profit for the year. Which of the following is most likely true?
A Truman has a higher inventory turnover ratio, and Stapleton has a lower gross profit ratio.

B Stapleton has a higher inventory turnover ratio and higher gross profit ratio.

C Truman has a higher inventory turnover ratio and higher gross profit ratio.

D Truman has a higher inventory turnover ratio, and Stapleton has a higher gross profit ratio.

Answer 1

Answer:

Truman has a higher inventory turnover ratio and Stapleton has a higher gross profit ratio ( D )

Explanation:

Truman sell a large number of common household items ( assuming 100 unit )

while Stapleton sells a small number of expensive items ( assuming 20 units )

lets assume : Truman sells at $5 per unit and Stapleton sells at $50 per unit

with the above assumptions

Truman gross profit ratio = $5 * 100 units = $500

Stapleton gross profit ratio = $50 * 20 units = $1000

from the above assumptions you can deduce that the gross profit made by Stapleton is higher although he sells a smaller amount of goods while Truman has a higher Turnover because of its higher number of sold units