The following data were taken from the financial statements of Koura and Maki: K

Question

The following data were taken from the financial statements of Koura and Maki:

                                     KOURA, Inc             MAKI, Inc

Sales of Revenue          $1,500,000             $2,000,000

Cost of Goods Sold       $830,000                $11,540,000

Inventory, end of yr       $185,000                $315,000

Inventory, beg. of yr      $235,000                $155,000

(A) Find the gross Profit margin for each. (B) Find the inventory turnover for each. (C) Find the average inventory days outstanding for each. (D) Analyze the information. Which company is doing better? Why?

Explanation / Answer

Hi,

Please find the answers as follows:

Part A:

Gross Margin = Sales-COGS/Sales * 100

KOURA, Inc = (1500000 - 830000)/1500000*100 = 44.67%

Maki Inc = (2000000-11540000)/2000000*100 = -477%

Part B

Inventory Turnover = COGS/Average Inventory

Koura Inc = 830000/(185000+235000)/2 = 3.95

Maki Inc = 11540000/(315000+155000)/2 = 49.10

Part C:

Koura Inc = 365/3.95 = 92.41 days

Maki Inc = 365/49.10 = 7.43 days

Part D

Koura Inc is doing better since it is earning a + margin on its sales.

Thanks.

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