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Computing the gross profit rate and the profit margin ratio

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Reference no: EM13531670

Reza Inc. operates a retail operation that purchases and sells snowmobiles, amongst other outdoor products. The company purchases all merchandise inventory on credit and uses a periodic inventory system. The Accounts Payable account is used for recording inventory purchases only; all other current liabilities are accrued in separate accounts. You are provided with the following selected information for the fiscal years 2010 through 2013, inclusive.

2010

2011

2012

2013

Income Statement Data



Sales revenue

$96,890

$ (e)

$82,220

Cost of goods sold

(a)

28,060

26,490

Gross profit

67,800

59,620

(i)

Operating expenses

63,640

(f )

52,870

Net income

$ (b)

$ 3,510

$ ( j)

Balance Sheet Data



Inventory

$13,000

$ (c)

$14,700

$ (k)

Accounts payable

5,800

6,500

4,600

(l)

Additional Information



Purchases of merchandise



inventory on account

$25,890

$ (g)

$24,050

Cash payments to suppliers

(d)

(h)

24,650

Instructions

(a) Calculate the missing amounts.

(b) The vice presidents of sales, marketing, production, and finance are discussing the company's results with the CEO. They note that sales declined over the 3-year fiscal period, 2011-2013. Does that mean that profitability necessarily also declined? Explain, computing the gross profit rate and the profit margin ratio for each fiscal year to help support your answer.

Reference no: EM13531670

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