FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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ProofSmart Inc., a supplier of home insulation materials, was burned down in a recent fire. From the remains of
what used to be the accounting ledger, the following information was recovered:
Inventory
Gross Margin
Inventory Turns
13
10
11
14
2006
$2,367,121
42%
11
Prior to the fire, ProofSmart saw a sales growth of 48% in 2007, a record performance for the 18-year-old
company. (NOTE: Gross margin is defined as 1 - (COGS/ Sales).)
What was the inventory turns for 2007? Choose the answer closest to the correct answer.
15
12
2007
$2,418,257
45 %
[unreadable]
Cannot be determined from the given data.
None of these
2
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Transcribed Image Text:ProofSmart Inc., a supplier of home insulation materials, was burned down in a recent fire. From the remains of what used to be the accounting ledger, the following information was recovered: Inventory Gross Margin Inventory Turns 13 10 11 14 2006 $2,367,121 42% 11 Prior to the fire, ProofSmart saw a sales growth of 48% in 2007, a record performance for the 18-year-old company. (NOTE: Gross margin is defined as 1 - (COGS/ Sales).) What was the inventory turns for 2007? Choose the answer closest to the correct answer. 15 12 2007 $2,418,257 45 % [unreadable] Cannot be determined from the given data. None of these 2
Expert Solution
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Step 1

Lets understand the basics.

Inventory turns ratio shows how many times inventory gets converted into sales during the year.

Inventory turns = Cost of goods sold/Inventory 

So if we use above formula then we can calculate cost of goods sold using below formula.

Cost of goods sold = Inventory * Inventory turns 

If we are having gross margin ratio then we can calculate sales by,

Sales = Cost of goods sold/(100% - Gross margin %)

 

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