In 2005, after years of positive growth in the housing market, sales and prices began to slow down and then decline. By 2007 many large home-construction companies were reporting net losses. The data below, for Ryland Group, Inc.€™s fiscal years ending on December 31, 2006, and 2005, pertain to analyzing the company€™s management of inventory. All dollar amounts are in thousands.

Required
a. Compute Ryland€™s gross margin percentage for 2006 and 2005.
b. Compute Ryland average days to sell inventory for 2006 and 2005.
c. Was Ryland€™s decline in earnings from 2005 to 2006 affected by either a lower gross margin or lower inventory turnover? Explain.
d. Do you think there may have been a connection between the change in Ryland€™s gross margin percentage from 2005 to 2006 and the change in its average days to sell inventory for the same period? Explain.
e. How much higher or lower would Ryland€™s earnings before taxes have been in 2006 if its gross margin percentage had been the same as it was in 2005? Show all supportingcomputations.

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2006 2005 Sales Cost of goods sold Ending inventory* Income before taxes $4,653,920 $4,725,751 3,537,603 1,735,859 1,188,148 721,051 567,108 Homebuilding sales only **Includes "homes under construction" plus "land under development and improved lots" only