Question - Inventory Management Metrics
Large retailers like The Home Depot and Wal-Mart typically use gross margin ratio (gross margin + sales), inventory turnover (sometimes referred to as inventory turns), and gross margin return on investment (GMROI) to evaluate how well inventory has been managed. The goal is to maximize profits while minimizing the investment in inventory. Below are data for four scenarios, a base scenario (# 1) followed by three modifications (#s 2, 3, & 4) to the base scenario.
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Scenario 1
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Scenario 2
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Scenario 3
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Scenario 4
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Sales
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$10,000
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$20,000
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$13,000
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$10,000
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Cost of goods sold
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8,000
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16,000
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8,000
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$8,000
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Gross profit
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$2,000
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$4,000
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$5,000
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$2,000
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Average inventory
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$7,000
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$7,000
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$7,000
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$6,000
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For each scenario calculate the gross margin percent, the inventory turnover, and GMROI. Round your answers to one decimal place.