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    Cost of Goods Sold; Gross Profit; Turnover; Margin

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    1. At the beginning of the year, Midtown Athletic had an inventory of $400,000. During the year, the company purchased goods costing $1,600,000. If Midtown Athletic reported ending inventory of $600,000 and sales of $2,000,000, their cost of goods sold and gross profit rate must be
    a. $1,000,000 and 50%
    b. $1,400,000 and 30%
    c. $1,000,000 and 30%
    d. $1,400,000 and 70%

    3. An aircraft company would most likely have a
    a. high inventory turnover.
    b. low profit margin.
    c. high volume.
    d. low inventory turnover.

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    Solution Preview

    1. The company's gross profit is computed thusly:

    Sales $2,000,000
    Cost of goods sold:
    Beginning inventory $ 400,000
    Purchases ...

    Solution Summary

    This solution consists of two parts. First, the cost of goods sold is computed based upon the beginning inventory, purchases and ending inventory. The gross profit is then computed based upon the sales reported. In the second part, the relationship of turnover and margin are discussed.