Business Applications Case Using ratios to make comparisons The following accounting information pertains to Java Joint and Coffee Corner at the end of 2008. The only difference between the two companies is that Java uses FIFO while Coffee uses LIFO.

Required:

a. Compute the gross margin percentage for each company, and identify the company that appears to be charging the higher prices in relation to its costs.

b. For each company, compute the inventory turnover ratio and the average number of days to sell inventory. Identify the company that appears to be incurring the higher inventory financing cost.

c. Explain why the company with the lower gross margin percentage has the higher inventory turnover ratio.

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Java Joint Coffee Corner Cash Accounts Receivable Merchandise Inventory $ 60,000 240,000 $ 60,000 240,000 180,000 140,000 Accounts Payable 160,000 160,000 Cost of Goods Sold 900,000 940,000 Building 300,000 300,000 Sales 1,500,000 1,500,000