Kramer Corp. reported the following sale and purchase transactions related to a specific product in January 2014:

Question:

Kramer Corp. uses a periodic inventory system and the FIFO inventory costing method.
Required:
1. Compute net sales and gross profit for January 2014.
2. Determine the inventory turnover ratio and the average days to sell inventory for January 2014, and explain what the numbers mean.
3. Prepare the journal entries to record the purchase transaction on January 6, the sale transaction on January 8, and the sales return on January 15.
4. Compute the cost of sales for January 2014, assuming for this part only that Kramer uses a perpetual inventory system and the weighted- average cost method.

Inventory Turnover Ratio
Inventory Turnover RatioThe inventory turnover ratio is a ratio of cost of goods sold to its average inventory. It is measured in times with respect to the cost of goods sold in a year normally. Inventory Turnover Ratio FormulaWhere,...

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Req 1 Sales 1440 3 4 5 units x 120 Less Sales returns and allowances 240 Net sales 1200 Cost of sales Beginning inventory 450 Purchases 1045 Cost of goods available for sale 1495 Ending inventory 380 5 3 11 4 5 x 95 Cost of sales 1115 Gross profit 85 Req 2 Average days to sell inventory 365inventory turnover 365269 136 days rounded The inventory turnover ratio reflects how many times average inventory was produced and sold during the period Thus Kramer sold its average merchandise inventory less than three times during the year The average number of days to sell inventory indicates the average time it takes Kramer to sell inventory to its customers It takes Kramer 136 days on average to sell its entire inventory to its customers Req 3 Jan 6 Purchases T 1045 Trade payables L 1045 Jan 8 Trade receivables A 480 Sales R SE 480 Jan 15 Sales returns and allowances XR R SE 240 Trade receivables A 240 Req 4 Weighted average cost method The total cost of sales is the sum of the cost of sales on January 3 8 and 9 January 3 sale Weightedaverage cost 90 Cost of sale ...View the full answer

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