Longs is a West Coast company with more than 400 drug stores. Financial information for fiscal 2008 and 2007 follows.

An excerpt from management discussion and analysis (MD&A) in the fiscal 2008 annual reported stated:
Gross profit was 25.7% of sales in fiscal 2008, compared to 25.3% in fiscal 2007. The increase was primarily due to a more profitable sales mix, improved inventory management and the increased utilization of generic drugs, which generally have higher gross profit percentages than name-brand drugs. Better buying practices resulting from our progress in centralizing procurement, advertising and promotional activities also contributed to our improved gross profit percentage. Continued reductions in prescription drug reimbursement rates from third-party health plans, including government-sponsored plans such as Medi-Cal, partially offset the increase in our gross profit percentage. In addition, pharmacy sales have lower gross profit percentages than front-end sales, and as pharmacy sales continued to grow as a percent of total sales, our overall gross profit as a percent of sales was adversely impacted.

Required
a. Compute the gross margin percentage for both years.
b. Based on your evaluation of the change in the gross margin percentage and the discussion in the MD&A, comment on how well the company has managed its gross margin.
c. Compute inventory turnover and days’ sales in inventory for both years.
d. Based on your analysis in part c, briefly comment on how well the company has controlled its investment in inventory.

Transcribed Image Text:

Fiscal Fiscal (In Thousands) 2008 2007 Sales $4,607,873 $4,526,524 Cost of merchandise sold 3,421,388 3,382,103 Merchandise inventory 433,280 477,122