Chapter 5, Problem 5BTN

To determine

Inventory:

Inventory refers to the stock or goods which will be sold in the near future and thus is an asset for the company. It comprises of the raw materials which are yet to be processed, the stock which is still going through the process of production and it also includes completed products that are ready for sale. Thus inventory is the biggest and the important source of income and profit for the business.

Gross Profit or Gross Margin:

The profit made after subtracting or debiting the costs related to the goods sold from the total revenue earned or made through sales in a fiscal year is the gross profit.

Cost of Goods Sold (COGS) or Cost of Sales:

Cost of goods sold is the total expenses or the cost incurred by the business during the process of manufacturing of goods and is directly related to the production. It generally includes the cost of raw material, labor and other manufacturing support costs.

Inventory Turnover Ratio:

It depicts the fraction of inventory sold or used by the company within a fiscal year. It states a ratio which shows the number of times goods were sold during an accounting period which thereby states the productivity or the efficiency level of the company regarding the inventory which apparently is the biggest asset for the company.

Days’ Sales in Inventory:

It indicates the days taken up by the company to convert the stock items into actual sales.

1.

To identify: Products manufactured by Company A.

2.

To determine

To identify: The inventory method used by the company.

3.

To determine

To compute: Gross margin and gross margin ratio for the year 2015.Also comment on it.

4.

To determine

To compute: Inventory turnover and days’ sales in inventory for the year 2015.Also comment on the results.