The following accounting information pertains to Boardwalk Taffy and Beach Sweets. The only difference between the two

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The following accounting information pertains to Boardwalk Taffy and Beach Sweets. The only difference between the two companies is that Boardwalk Taffy uses FIFO, while Beach Sweets uses LIFO.

Boardwalk Taffy Beach Sweets $ 120,000 480,000 $ 120,000 480,000 Cash Accounts receivable Merchandise inventory Accounts


Required
a. Compute the gross margin percentage for each company and identify the company that appears to be charging the higher prices in relation to its cost.
b. For each company, compute the inventory turnover ratio and the average days to sell inventory. Identify the company that appears to be incurring the higher financing cost.
c. Explain why a company with the lower gross margin percentage needs to have a higher inventory turnover ratio assuming a period of inflation.

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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Related Book For  book-img-for-question

Introductory Financial Accounting for Business

ISBN: 978-1260299441

1st edition

Authors: Thomas Edmonds, Christopher Edmonds

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