Reference no: EM131639959
Problem -
Two years ago, Ms. Carol, the misses sportswear buyer, agreed with management that a separate petite sportswear department should be created. Because of increasing sales, she felt that petite sportswear had outgrown its status as a classification and deserved, in its own right, to become a separate department. Ms. Carol continued as the buyer for the newly created department, and with her enthusiastic and skillful attention, the impressive sales increases continued for the first year. The second year, however, the sales increases were minute. Ms. Carol now questioned if the category should remain a department or again be incorporated into the misses sportswear department. To make an appropriate judgment, she requested the following data for analysis. The department had an opening inventory of $750,000 at retail that carried a 53% markup. During this period, the total purchases of $570,000 at retail were priced with a 56.1% markup. The freight charges were $9,600. The merchandise returned to vendors amounted to $14,000 at cost, and $30,000 at retail. Transfers into this department were $3,500 at cost, and $7,600 at retail. Transfers out of this department were $8,000 at retail, with an agreed cost of $3,700. The gross sales were $720,000; customer returns and allowances were $30,000. The markdowns taken were 12%, and employee discounts were 1%.
Ms. Carol needs to find out the gross margin percentage achieved by the petite sportswear department to determine if this "new" department should continue as a separate entity.
Please take the following steps to solve this problem (Total possible points: 75):
Step 1: Find opening inventory at cost
Opening inventory at cost = Opening inventory in retail X (1 - Opening inventory MU%)
Step 2: Find new purchases at cost
New purchases at cost = New purchases in retail X (1 - New purchases MU%) + freight charges
Step 3: Find total merchandise handled (total amount of merchandise available for sale during this selling period) at cost AND in retail
Total merchandise handled = Opening inventory + New purchases - Returns to vendors + Transfers in - Transfers out
Total merchandise handled in retail
Total merchandise handled at cost
Step 4: Find CMU% of total merchandise handled
CMU% = (Total merchandise handled at retail - Total merchandise handled at cost)
Total merchandise handled at retail
Step 5: Find net sales
Net sales = Gross Sales - Customer returns & allowances
Step 6: Find markdown$ and employee discounts$
Markdown$ = Markdown% X Net Sales
Employee discounts$ = Employee Discount% X Net Sales
Step 7: Find total stock deductions (Outs) in retail
Total stock deductions = Net sales + Markdowns + Employee Discounts + Returns to Vendors + Transfers out
Step 8: Find total stock additions (Ins) in retail
Total stock additions = New purchases + Transfers in
Step 9: Find closing inventory in retail
Closing inventory = Opening inventory + Total stock additions (Ins) - Total stock deductions
Step 10: Find closing inventory at cost
Closing inventory at cost = Closing inventory in retail X (1 - CMU%)
Step 11: Find total cost of merchandise sold
Total cost of merchandise sold = Total merchandise handled at cost - Closing inventory at cost
Step 12: Find gross margin
GM = Net sales - Total cost of merchandise sold
Step 13: Find gross margin%
GM% = GM$ / Net sales