Question 1 - Inventory Ratio Calculations
McMahan, LTD. provided the following data for 2008 and 2009:
Inventory
December 31, 2007 $178,000
December 31, 2008 187,000
December 31, 2009 194,000
Cost of goods sold
2008 $545,000
2009 590,000
Gross margin
2008 $253,000
2009 288,000
Do not round until your final answers. Round all calculations to two decimal places.
(a) Calculate the inventory turnover ratio for 2008 and 2009.
(b) Calculate the gross margin return on inventory investment for 2008 and 2009.
(c) Which of the following is an indication that McMahan has become more lean in 2009 than in 2008?
a. All of the above are signs of having a lean operation.
b. It had a higher gross margin in 2009 than 2008.
c. It had a higher inventory turnover in 2009 than in 2008.
d. For every dollar invested in average inventory it produced more gross margin in 2008 than in 2009.
e. Inventory turnover was above the established standard of 3.0 for lean companies.
Question 2 - Interdepartment Services: Step Method
O'Brian's Department Stores allocates the costs of the Personnel and Payroll departments to three retail sales departments, Housewares, Clothing, and Furniture. In addition to providing services to the operating departments, Personnel and Payroll provide services to each other. O'Brian's allocates Personnel Department costs on the basis of the number of employees and Payroll Department costs on the basis of gross payroll. Cost and allocation information for June is as follows:
Direct department cost $6,100 $3,900 $12,800 $20,000 $16,050
Number of employees 4 2 9 14 4
Gross payroll $6,100 $3,300 $10,900 $16,900 $8,300
(a) Determine the percentage of total Personnel Department services that was provided to the Payroll Department. (Round your answer to one decimal place.)
(b) Determine the percentage of total Payroll Department services that was provided to the Personnel Department. (Round your answer to one decimal place.)
(c) Prepare a schedule showing Personnel Department and Payroll Department cost allocations to the operating departments, assuming O'Brian's uses the step method.
Do not round until your final answers. Round answers to the nearest dollar.