Inventory Ratio Calculations
McMahan, LTD. provided the following data for 2013 and 2014:
| Inventory | |
| December 31, 2012 | $ 176,000 |
| December 31, 2013 | 185,000 |
| December 31, 2014 | 194,000 |
| Cost of goods sold | |
| 2013 | $ 586,000 |
| 2014 | 629,000 |
| Gross margin | |
| 2013 | $ 256,000 |
| 2014 | 287,000 |
Do not round until your final answers. Round all calculations to two decimal places.
(a) Calculate the inventory turnover ratio for 2013 and 2014.
2013
2014
(b) Calculate the gross margin return on inventory investment for 2013 and 2014.
2013
2014
inventory turnover ratio means how much inventory is sold during the period .It is calculated as follow
inventory turnover ratio =Cost of good sold/ Invetory
| For the year 2013 | |
| Inventory | Amount in $ |
| 31-Dec-12 | 176,000 |
| 31-Dec-13 | 185,000 |
| Total | 361,000 |
| Average invetory (A) | 180500 |
| Cost of goods sold (B) | 586,000 |
| Iinventory turnover ratio (B)/ (A) | 3.246537396 |
| For the year 2014 | |
| 31-Dec-13 | 185,000 |
| 31-Dec-14 | 194,000 |
| 379,000 | |
| Average invetory (A) | 189500 |
| Cost of goods sold (B) | 629,000 |
| Iinventory turnover ratio (B)/ (A) | 3.319261214 |
gross margin return on inventory investment = Gross margin / Average inventory
Calculation for gross margin return on inventory investment for 2013 and 2014. is as under
| For the year 2013 | |
| Inventory | Amount in $ |
| 31-Dec-12 | 176,000 |
| 31-Dec-13 | 185,000 |
| Total | 361,000 |
| Average invetory (A) | 180500 |
| Gross Margin(B) | 256,000 |
| gross margin return on inventory investment (B)/ (A) | 1.418282548 |
| For the year 2014 | |
| 31-Dec-13 | 185,000 |
| 31-Dec-14 | 194,000 |
| 379,000 | |
| Average invetory (A) | 189500 |
| Cost of goods sold (B) | 287,000 |
| gross margin return on inventory investment (B)/ (A) | 1.514511873 |
