Scott Walker Company reported the following data for the past year: Net sales $460,000 Purchases $230,000 Beginning Inventory $100,000 Ending Inventory $140,000 Cost of Goods Sold $280,000 Industry Averages available are: Inventory Turnover 5.00 Gross Profit Percentage 50% How do the inventory turnover and gross profit percentage for Scott Walker Company compare to the industry averages for the same ratios? (Round inventory turnover to two decimal places. Round gross profit percentage to the nearest percent.)

Answer: The rate of stock turnover is 2.33 times, percentage of gross profit is 64.3%

Explanation:

To calculate Rate of stock turnover

Cost of good sold / Average stock

Where Average stock = Opening stock + Closing Stock / 2

= 100,000 + 140,000/2

= 240,000/2

= $120,000

Since cost of good sold = $280,000

We divide the cost of good sold by average stock to get the rate of turnover of stock

280,000/120,000

= 2.33

Therefore the rate of stock turnover is 2.33 times

The comparison is that it means that the average stock have been turnover 2.33 times within the year. It is not fast enough, because it is below the industry average of 5.0 times

To calculate the percentage of Gross Profit, we use the formula

Gross Profit / Total Sales * 100%

Opening stock + Purchase = Cost of good Available for sale

100,000 + 320,000 = 420,000

Cost of good Available for sale - Closing Stock = Cost of good sold

= 420,000 - 140,000 = 280,000

Net Sales - Cost of good sold = Gross Profit

= 460,000 - 280,000 = 180,000

Since our Gross Profit = $180,000, and our Net sales = $ 460,000 we can calculate our percentage of Gross Profit

= GrossProfit / Total Sales * 100%

= 180,000/280,000*100%

= 0.6428*100

= 64.3%

The business is a profitable one because, the ratio is above the industry average of 50%

Scott Walker company has an inventory turnover of 2.33 times and 39.13% while The industrial averages of inventory turnover and gross profit percentage is 5 times and 50% respectively.

Explanation:

Inventory turnover ratio is ratio of cost of goods sold to average inventory.

Cost of goods sold = $280,000

Beginning inventory = $100,000

Ending inventory = $140,000

Average inventory = [ (100,000 + 140,000) / 2]

= $120,000

Inventory Turnover Ratio = Cost of goods sold / Average inventory

= 280,000 / 120,000

= 2.33 times

Scott Walker company's inventory turnover ratio is 2.33 times.

Gross profit margin is ratio of gross profit to net sales.

Gross profit = Net sales - cost of goods sold

= 460,000 - 280,000

= $180,000

Gross profit percentage = Gross profit / net sales

= 180,000 / 460,000

= 0.3913 or 39.13%

Scott Walker company's gross profit percentage is 39.13%.

Therefore, Scott Walker company has an inventory turnover of 2.33 times and 39.13% while The industrial averages of inventory turnover and gross profit percentage is 5 times and 50% respectively.