Question

Thompson TV and Appliance reported the following in its 2021 financial statements:

2021
Sales $ 420,000
Cost of goods sold:
Inventory, January 1 82,000
Net purchases 340,000
Goods available for sale 422,000
Inventory, December 31 86,000
Cost of goods sold 336,000
Gross profit $ 84,000
Thompson's 2021 gross profit ratio is:________.
a. 3.91
b. 4.00.
c. 4.88
d. 5.00

Answer 1

Gross profit ratio= 20; inventory turnover ratio= 4.00.

Step-by-step explanation:

Given option in the question are incorrect for gross profit ratio as option given are for Inventory turnover ratio.

Given: Net sales= $420000.

Cost of goods sold= $336000

Gross profit= $84000

Now, claculating the gross profit ratio.

Formula; Gross profit ratio=
`(Gross\ profit)/(Net\ sales) * 100`

⇒ Gross profit ratio=
`(84000)/(420000)* 100`

∴ Gross profit ratio= 20

Now, finding the Inventory turn over ratio.

Formula;
`Inventory\ turnover\ ratio= (cost\ of\ good\ sold)/(average\ inventory)`

Average inventory=
`(Beginning\ inventory + ending\ inventory)/(2)`

⇒ Average inventory=
`(82000+86000)/(2)`

∴ Average inventory=
`(168000)/(2) = 84000`

Next,
`Inventory\ turnover\ ratio= (336000)/(84000)`

⇒
`Inventory\ turnover\ ratio= 4.00`

Hence, Gross profit is 20 and inventory turnover ratio is 4.00