The Fun Zone sells a variety of childrens toys, games, books, and accessories. Assume that a local
Question:
The Fun Zone sells a variety of children’s toys, games, books, and accessories. Assume that a local store has the following amounts for the month of March 2024.
Required:
1. Prepare a multiple-step income statement for the month ended March 31, 2024.
2. Calculate the inventory turnover ratio for the month of March. Would you expect this ratio to be higher or lower in December 2024? Explain.
3. Calculate the gross profit ratio for the month of March.
Sales revenue Advertising expense Rent expense Gain on sale of building Inventory (Mar. 1, 2024) Cost of goods sold $77,300 6,400 4,300 7,500 2,800 35,800 Inventory (Mar. 31, 2024) Insurance expense Sales discounts Salaries expense Income tax expense $1,000 2,300 3,000 9,400 4,200
Step by Step Answer:
1 The multiplestep income statement for the month ended March 31 2024 The Fun Zone Income Statement ...View the full answer
Related Video
Inventory turnover is a key metric that helps businesses evaluate the efficiency of their operations. A high turnover ratio is generally considered positive, indicating that the company is effectively selling its inventory and making efficient use of its resources. On the other hand, a low turnover ratio may indicate issues such as overstocking or slow sales and may require further examination to identify and address the underlying causes. Businesses use this ratio to make decisions about inventory levels, production schedules, and pricing strategies. It also helps businesses to identify areas where they may need to make improvements, such as reducing lead times for production or optimizing sales and marketing efforts. Additionally, inventory turnover is used by investors and analysts as a key performance indicator to evaluate the financial health and growth potential of a company.
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