Real-World Case Analyzing inventory management issues at Campbell’s Soup After more than a decade of generally positive economic news, the United States economy began to slow in 2000. At that time, the Campbell Soup Company (Campbell’s), like many other companies, saw its earnings decline. Campbell’s net earnings fell from \($714\) million in its 2000 fiscal year to \($525\) million in 2002, but then profits began to improve. By 2004 its earnings were back up to \($647\) million. The data below, for Campbell’s fiscal years ending on August 3, 2003, and August 1, 2004, pertain to analyzing the company’s management of inventory. All dollar amounts are in millions.

Required:

a. Compute Campbell’s gross margin percentage for 2004 and 2003.

b. Compute Campbell’s average days to sell inventory for 2004 and 2003.

c. Did Campbell’s earnings improve from 2003 to 2004 due to either better gross margins or better inventory management (turnover)? Explain.

d. How much higher or lower would Campbell’s earnings before taxes have been in 2004 if its gross margin percentage had been the same as it was in 2003? Show all supporting computations.

e. How much higher or lower would Campbell’s net earnings have been in 2004 if its gross margin percentage had been the same as it was in 2003? Show all supporting computations.

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2004 2003 Sales $7,109 $6,678 Cost of goods sold 4,187 3,805 Ending inventory 795 709 Income before taxes 947 924 Net earnings 647 595* Income tax rate 32% 32%