Question

Calculating Gross Profit Margin and Inventory Turnover
The following table presents sales revenue, cost of goods sold, and inventory amounts for three retailers of fine jewelry, Tiffany & Co., Zale Corporation, and Blue Nile, Inc. (an Internet retailer).

($ millions)	2013	2012
Tiffany & Co.
Revenues	$4,231	$3,974
Cost of goods sold	1,766	1,664
Inventory	2,477	2,335
Zale Corporation
Revenues	$1,963	$1,900
Cost of goods sold	979	939
Inventory	813	759
Blue Nile, Inc.
Revenues	$495	$433
Cost of goods sold	441	358
Inventory	80	50

a. Compute the gross profit margin (GPM) for each of these companies for 2013 and 2012.

	Tiffany				Zale				Blue Nile
	2013		2012		2013		2012		2013		2012
Gross profit	$Answer		$Answer		$Answer		$Answer		$Answer		$Answer
Gross profit margin (GPM)	Answer	%	Answer	%	Answer	%	Answer	%	Answer	%	Answer	%

b. Compute the inventory turnover ratio and the average inventory days outstanding for 2013 for each company.

Do not round until your final answer.

Round inventory turnover to one decimal place. Round average inventory days outstanding to nearest whole number.

	Tiffany	Zale	Blue Nile
Inventory turnover	Answer	Answer	Answer
Avg. inventory days outstanding	Answer	Answer	Answer

d. Zale reports that as of July 31, 2013 its LIFO reserve totaled $108 million while at July 31, 2012 it totaled $75.3 million. Using a 35% tax rate, how much money did Zale save in fiscal 2013 using LIFO and how much has Zale saved since it began using LIFO to value its inventories?

Round each answer to one decimal place.

Amount saved in taxes to date	$Answer	million
Amount saved in taxes for year ending 7/31/2013	$Answer	million

Answer 1

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a. Gross Profit Margin
	Tiffany			Zale			Blue Nile
	2013	2012		2013	2012		2013	2012
Revenue	$                 4,231	$       3,974		$       1,963	$       1,900		$        495	$        433
Less: Cost of Goods Sold	$                 1,766	$       1,664		$           979	$           939		$        441	$        358
Gross profit	$                 2,465	$       2,310		$           984	$           961		$           54	$           75
Gross profit margin (GPM)	58.26%	58.13%		50.13%	50.58%		10.91%	17.32%
(Gross Profit/Revenue)
b. Inventory Turnover Ratio:
	Tiffany			Zale			Blue Nile
	2013	2012	Average	2013	2012	Average	2013	2012	Average
Average Inventory	$                 2,477	$       2,335	$       2,406	$           813	$           759	$        786	$           80	$           50	$          65
Cost of Goods Sold-2013			$       1,766			$        979			$        441
Invetntory turn over ratio			0.73	time		1.25	time		6.78	time
COGS/Average Inventory
Avg. inventory days outstanding			497			293			54
365/Inventory Turn Over
d. Amount saved in Tax
Amount saved in taxes to date	108*35%	$       37.80	million
Amount saved in taxes for year ending 7/31/2013	(108-75.3)*35%	$       11.45	million