Fancy Incorporated and Thrift Specialty both offer men's formal footwear. Thrift offers lower-to-middle priced footwear, whereas Fancy offers more specialized, higher-end footwear. The average price for a pair of shoes in Thrift may be about $40, whereas the average price in Fancy may be about $200. The types of shoes offered by Fancy are not sold by many other stores. Suppose Thrift and Fancy report the following amounts for men's shoes in the same year (company names are disguised):?Company 1Company 2Net sales$120,000$120,000Cost of goods sold46,00080,000Gross profit$74,000$40,000Average inventory$23,000$20,000Required: 1. For Company 1 and Company 2, calculate the inventory turnover ratio.2. For Company 1 and Company 2, calculate the gross profit ratio.3. After comparing the
inventory turnover ratios and gross profit ratios, which company do you think is Thrift and which is Fancy? Explain.
What will be an ideal response?
Requirement 1
Requirement 2
Requirement 3
Company 1 is likely Fancy and Company 2 is likely Thrift. The reason is that common, lower-to-middle priced footwear is likely to sell more quickly than is more specialized, higher-end footwear. In addition, higher-end footwear is likely to be more profitable due to less competition.
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