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Analysis of Return on Inventory Investment

The following information has been given for two clothing stores. Plaids & Stripes and Audrey's Apparel expect that August and September will be the busiest months for their children's clothing departments.

1. Using the information given, which store generated the most total profit from inventory sales?
2. Calculate the return on inventory investment for both stores' childrens departments. (Use both the profit margin and inventory turnover ratios.)
3. Using the calculations from part (2), which stroe actually manages its inventory more effectively? Explain answer.

Plaids & Stripes Audrey's Apparel
Revenue 565,000 1,115,000
Gross Margin 296,100 527,300
Average Investment in Inventory 29,000 165,000

Solution Preview

1. Using the information given, which store generated the most total profit from inventory sales?

Audrey's Apparel generates the most total profit from inventory sales, which is 527,300.

2. Calculate the return on inventory investment for both stores' children departments. (Use both the profit margin and inventory turnover ratios.)

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Solution Summary

This solution is comprised of a detailed explanation and calculation to find the profit margin and inventory turnover ratio.

$2.19