Large retailers like The Home Depot and Wal-Mart typically use gross margin ratio (gross margin ÷ sales), inventory turnover (sometimes referred to as inventory turns), and gross margin return on investment (GMROI) to evaluate how well inventory has been managed. The goal is to maximize profits while minimizing the investment in inventory. Below are data for four scenarios, a base scenario (# 1) followed by three modifications (#s 2, 3, & 4) to the base scenario. Scenario 1 Scenario 2 Scenario 3 Scenario 4 Sales $10,000 $20,000 $12,000 $10,000 Cost of goods sold 6,000 12,000 6,000 6,000 Gross profit $4,000 $8,000 $6,000 $4,000 Average inventory $6,000 $6,000 $6,000 $5,000 For each scenario calculate the gross margin percent, the inventory turnover, and GMROI.
Large retailers like The Home Depot and Wal-Mart typically use gross margin ratio (gross margin ÷ sales), inventory turnover (sometimes referred to as inventory turns), and gross margin return on investment (GMROI) to evaluate how well inventory has been managed. The goal is to maximize profits while minimizing the investment in inventory. Below are data for four scenarios, a base scenario (# 1) followed by three modifications (#s 2, 3, & 4) to the base scenario. Scenario 1 Scenario 2 Scenario 3 Scenario 4 Sales $10,000 $20,000 $12,000 $10,000 Cost of goods sold 6,000 12,000 6,000 6,000 Gross profit $4,000 $8,000 $6,000 $4,000 Average inventory $6,000 $6,000 $6,000 $5,000 For each scenario calculate the gross margin percent, the inventory turnover, and GMROI.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Inventory Management Metrics
Large retailers like The Home Depot and Wal-Mart typically use gross margin ratio (gross margin ÷ sales), inventory turnover (sometimes referred to as inventory turns), and gross margin
| Scenario 1 | Scenario 2 | Scenario 3 | Scenario 4 | |
|---|---|---|---|---|
| Sales | $10,000 | $20,000 | $12,000 | $10,000 |
| Cost of goods sold | 6,000 | 12,000 | 6,000 | 6,000 |
| Gross profit | $4,000 | $8,000 | $6,000 | $4,000 |
| Average inventory | $6,000 | $6,000 | $6,000 | $5,000 |
For each scenario calculate the gross margin percent, the inventory turnover, and GMROI.
Round your answers to one decimal place. (Example for % answers -- 99.9%)
| Scenario 1 | Scenario 2 | Scenario 3 | Scenario 4 | |
|---|---|---|---|---|
| Gross margin % | ||||
| Inventory Turnover | ||||
| GMROI |
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