Question

The following information is available for MVF Company(dollar amounts are in millions)

2016 2015 2014 2013
Net sales $23.2 $21.7 $19.6 $17.4
Cost of goods sold 17.1 16.8 15.2 13.5
Beginning finished
goods inventory 2.3 2.1 1.9 1.5
Ending finished goods
inventory 2.9 2.3 2.1 1.9
Materials purchased 10.6 8.8 7.5 7.1

a. Calculate the following ratios for each year: Gross profit percentage. Inventory turnover Cost of materials purchased to cost of finished goods produced.
b. Analyze the results obtained in 3.a. above: Describe the change in each ratio you observe in 2016. Discuss at least two possible causes of each change observed.

Answer 1

Answer:

                                           2016            2015          2014           2013

gross profit%                     26.29%        22.58%      22.45%     22.41%

Inventory turnover          6.58               7.64            7.6             7.94

cost of material %          59.89%       51.76%         89.82%       51.10

b. gross%  has increased this may be due to a high demand, and intense marketing.

inventory turnover has decreased this may be due to new competition, or introduced product(new product)

cost of material purchased % it has increased in 2016, this may be due to increased production and effective use of material.

Explanation:

gross profit % =gross profit/ sales

gross profit = sales less cost of sales

inventory turnover = cost of sales / average inventory

average inventory = (opening inventory + closing inventory )/2

cost of material purchased/ cost of finished goods

finished goods = cost of sales + closing - opening goods