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Concept Introduction:
FIFO- Perpetual inventory System: FIFO (First in first out) method assumes the flow of inventory in the same order of its purchase. In other words, the oldest purchase is assumed to be sold first in order of purchases made. The FIFO method can be applied using perpetual or periodic method. In the perpetual inventory method, the inventory balance is updated after each inventory transaction.
Gross Profit percentage: Gross profit percentage is percentage of gross profit over net sales. It is a profitability ration to analyze the profitability. The formula to calculate the Gross Profit percentage is as follows:
Inventory Turnover: Inventory turnover ratio is efficiency ratio which indicates the efficiency to convert the inventory into sales. The formula to calculate the Inventory turnover is as follows:
Note: Average inventory is calculated as average of beginning and ending inventory for a period.
Days sales in inventory: Days sales in inventory indicates the average time during which the inventory waits for sale. The formula to calculate the Days sales in inventory is as follows:
To determine: The Gross Profit percentage, Inventory Turnover and Days sales in inventory
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Chapter 6 Solutions
Horngren's Accounting (12th Edition)
- The standard cost of Wonder Walkers includes 3 units of direct materials at $9.00 per unit. During July, the company buys 40,000 units of direct materials at $8.25 and uses those materials to produce 15,000 units. Compute the total, price, and quantity variances for materials.arrow_forwardBranson paid $465,000 cash for all of the outstanding common stock of Wolfpack, Incorporated, on January 1, 2023. On that date, the subsidiary had a book value of $340,000 (common stock of $200,000 and retained earnings of $140,000), although various unrecorded royalty agreements (10-year remaining life) were assessed at a $100,000 fair value. Any remaining excess fair value was considered goodwill. In negotiating the acquisition price, Branson also promised to pay Wolfpack's former owners an additional $50,000 if Wolfpack's income exceeded $120,000 total over the first two years after the acquisition. At the acquisition date, Branson estimated the probability-adjusted present value of this contingent consideration at $35,000. On December 31, 2023, based on Wolfpack's earnings to date, Branson increased the value of the contingency to $40,000. During the subsequent two years, Wolfpack reported the following amounts for income and dividends: Dividends Declared Year Net Income $ 65,000…arrow_forwardAnswer? ? Financial accounting questionarrow_forward
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