Burlingame Gems, Inc., a retail jewelry store, had gross profits of $1,320,000 on sales of $2,500,000 in 20X3. Average inventory was $1,000,000.
1. Compute inventory turnover.
2. Anne Scott, owner of Burlingame Gems, is considering whether to become a “discount” jeweler. For example, Anne believes that a reduction of 10% in average selling prices would increase inventory turnover in 20X4 to 1.5 times per year. Beginning and ending inventory would be unchanged. Suppose Anne’s beliefs are valid. What would her new gross profit percentage be?
Would the total gross profit in 20X4 have improved? Show computations.