. QUESTION 1 Continued: (6) Fonterra Co-operative Group Limited (Fonterra) and A2 Milk Company Limited (A2) compete in the New Zealand milk industry. Both companies primarily sell plain milk, but they also sell other milk-related products. Fonterra sells ice cream, butter, yoghurt and cheese. A2 sells infant formula. These milk-related products require further manufacturing, resulting in higher unit costs and higher selling prices compared to plain milk. The following amounts were extracted from their financial statements: S '000 Sales Revenue Cost of Goods Solde Comprehensive Income Inventory Total Assets Fonterra 20192 2018- 20.114,000 20,438,000 (17,334.000) (17.279.000) (447,000) (433,000) 2,944,000 2,917,000 17,074,000 18.015,000 A2 20192 2018 1,304,336 922,354 (590,584) (458,005) 221,0324 304,3514 108,4534 64,1014 993,470 722,578 REQUIRED: (1) A2 shows an increase in Inventory of 69.19%, despite Sales only growing by 41.41%. Briefly explain why Inventory might increase by a larger amount than Sales. Briefly explain what mechanical effect this increase in Inventory has on A2's Inventory Turnover ratio (inflate deflate, or no effect). Maximum 120 words. (3 marks) (1) Relative to milk-related products, explain why you would expect plain milk to have higher or lower Gross Profit Margin and Inventory Turnover ratios? Maximum 120 words. (3 marks) (111) Referring to the ratios, explain which company you believe sells a higher proportion of milk-related products to plain milk Maximum 120 words. (3 marks) (Total for question 1: 15 marks)