Net accounts receivables at December 31, 2007 P 900,000 Net accounts receivables at December 31, 2008 1,000,000 Accounts receivables turnover 5 to 1 Inventories at December 31, 2007 P1,100,000 Inventories at December 31, 2008 1,200,000 Inventory turnover 4 to 1 What was Erik Santos’s gross margin %?

Computation of the gross margin:-

Average accounts receivable = (Beginning accounts receivable + ending accounts receivable) / 2

= (900,000 + 1,000,000) / 2

= 1,900,000 / 2

= 950,000

Accounts receivable turnover = Net credit sales / Average accounts receivable

5 = Net credit sales / 950,000

Net credit sales = 950,000 * 5

= 4,750,000

Average inventory = (Beginning inventory + Ending inventory) / 2

= (1,100,000 + 1,200,000) / 2

= 2,300,000 / 2

= 1,150,000

Inventory turnover = Cost of goods sold / Average inventory

4 = Cost of goods sold / 1,150,000

Cost of goods sold = 1,150,000 * 4

= 4,600,000

Gross margin = Net credit sales - Cost of goods sold

= 4,750,000 - 4,600,000

= 150,000

Gross margin % = Gross margin / Net credit sales

= 150,000 / 4,750,000

= 3.16%