Danier Leather Inc. manufactures and sells high- quality, fashionable leather clothing and accessories. The company’s business is seasonal, as are most retail businesses. Historically, more than 40 percent of the company’s total annual sales have been generated during its second fiscal quarter (October–December), which includes the holiday selling season. The company’s results of operations depend significantly upon the sales generated during this period. A variety of factors affect sales, including fashion trends, competition, economic conditions, the timing of merchandise releases and promotional events, changes in merchandise assortment, success of marketing programs, cross- border shopping, and weather conditions, among others. The following table provides selected financial information for two recent years. All amounts are in thousands:
1. Compute the gross profit and the inventory turnover ratio for fiscal years 2011 and 2012.
2. Compute the company’s gross profit for each quarter. What does the seasonal pattern of the gross profit reveal?
3. Is there a seasonal pattern in inventory balances? Would Danier’s choice of fiscal year- end affect the inventory turnover ratio computed in (1)? Explain.
4. Re-compute Danier’s inventory turnover ratios for 2012 based on the average of the quarterly balances of ending inventory instead of the annual balances. Is there a significant difference between this ratio and the ratio computed in (1)? Explain.

  • CreatedAugust 04, 2015
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