Examining the recent financial statements of McLelland Clothing, Inc., you note the following: Sales $754,693 Cost of goods sold:
Analyzing Inventory
Examining the recent financial statements of McLelland Clothing, Inc., you note the following:
| Sales | $754,693 |
| Cost of goods sold: | |
| Computed under FIFO | 506,000 |
| Computed under LIFO | 557,500 |
| Average inventory: | |
| Computed under FIFO | 76,900 |
| Computed under LIFO | 45,800 |
Required:
1. Calculate McLelland's gross profit ratio (rounded to two decimal places), inventory turnover ratio (rounded to three decimal places), and the average days to sell inventory (assume a 365-day year and round to two decimal places) using the FIFO inventory costing method.
| Gross profit ratio | fill in the blank 1 % |
| Inventory turnover ratio | fill in the blank 2 |
| Average days to sell inventory | fill in the blank 3 days |
2. Calculate McLelland's gross profit ratio (rounded to two decimal places), inventory turnover ratio (rounded to three decimal places), and the average days to sell inventory (assume a 365-day year and round to two decimal places) using the LIFO inventory costing method.
| Gross profit ratio | fill in the blank 4 % |
| Inventory turnover ratio | fill in the blank 5 |
| Average days to sell inventory | fill in the blank 6 days |
3. Conceptual Connection: Which ratios—the ones computed using FIFO or LIFO inventory values—provide the better indicator of how successful McLelland was at managing and controlling its inventory?
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