Flingers Inc.reveals the following information in their annual report for FY 2014. Every dollar Flingers saves in purchasing has the same impact as what amount of increased sales?
A) $10
B) $14
C) $17
D) $20

Question

Flingers Inc.reveals the following information in their annual report for FY 2014.  Every dollar Flingers saves in purchasing has the same impact as what amount of increased sales?
A) $10 
B) $14 
C) $17 
D) $20

Quizplus · Accepted Answer

The answer can be found by calculating the company's Gross Margin Return on Investment (GMROI) which measures the amount of gross profit earned on every dollar invested in inventory. Generally, a GMROI of 1 or higher is considered to be good. In Flingers Inc.'s case, their GMROI is $2, which means that for every $1 invested in inventory, they earn $2 in gross profit. Therefore, every dollar saved in purchasing has the same impact as $2 in increased sales. Dividing $2 by 2 gives us a result of $1, so the answer is D) $20.