Calculate gross profit ratio given the following information: accounts receivable = $3,500; inventory = $4,500; receivable turnover = 80 times; inventory turnover = 18 times.
A) 70%
B) 71%
C) 72%
D) 73%
E) 74%

Question

Quizplus · Accepted Answer

The gross profit ratio is calculated using the formula Gross Profit/Sales. First, we need to find the sales. Sales can be found using the receivable turnover formula, which is Sales/Accounts Receivable. Given a receivable turnover of 80 times and accounts receivable of $3,500, Sales = 80 * $3,500 = $280,000. Next, we find the cost of goods sold (COGS) using the inventory turnover formula, which is COGS/Inventory. Given an inventory turnover of 18 times and inventory of $4,500, COGS = 18 * $4,500 = $81,000. Gross Profit = Sales - COGS = $280,000 - $81,000 = $199,000. Finally, Gross Profit Ratio = (Gross Profit/Sales) * 100 = ($199,000/$280,000) * 100 = 71%.

Calculate Gross Profit Ratio Given the Following Information: Accounts Receivable