Xena Inc. (Xena) is an importer of gift items from Europe and Asia. Xena classifies its inventory into three categories: porcelain figurines, toys, and linens. Over the years Xena has found that the success of the three categories has tended to vary, sometimes quite significantly, although, fortunately for the company, poor performance of one category seems to be offset by success in another. On its balance sheet and income statement Xena doesn’t break down its inventory, sales, and cost of sales into the three categories.

For its years ended October 31, 2013 and 2014 Xena reported inventory of

$668,000 and $693,200 respectively. For the fiscal year ended October 31, 2014 Xena reported sales of $3,137,600 and cost of sales of $1,541,800. However, the following breakdown of inventory, sales, and cost of sales has been made available to you:

Required:

a. Calculate the gross margin percentage, inventory turnover ratio, and the average number of days inventory on hand for the year ended October 31, 2014 using the aggregated amounts reported for inventory, sales, and cost of sales on Xena’s balance sheet and income statement.

b. Calculate the gross margin, inventory turnover ratio, and the average number of days inventory on hand for the year ended October 31, 2014 for each category of inventory that Xena carries.

c. What are the implications of the results you obtained in parts

(a) and

(b) of the question?

d. How is your ability to analyze Xena affected by the aggregated information presented in the company’s balance sheet and income statement versus the information that was made available to you? Explain fully.

Transcribed Image Text:

Inventory balance on Category October 31, 2013 Inventory balance on October 31, 2014 Sales for the Cost of sales for year ended the year ended October 31, 2014 Porcelain figurines $234,000 $255,200 $1,380,000 Toys 270,000 202,000 1,108,400 October 31, 2014 $552,000 665,200 Linens 164,000 236,000 649,200 324,600