Gross Margin % of Drug Sales to Total Sales
Industry Gross Profit % for Drugs and Related Products
a. Both of Adams’ explanations are correct, the industry gross profit percent has declined steadily over the past years. Drug sales have also steadily declined as a percentage of the total volume of sales. Since 2008, the contribution of sales resulting from the pharmacy has dropped from 18.9% to 14.6% of total sales.
b. According to the information provided, the non-drug sales should be more thoroughly investigated. The retail drug industry’s gross profit percent has been going down over the past 3 years, but nondrug sales have been going up. Since 2008-2011, sales have gone up by 59%.
1. Commission expense could have been understated in the past year, or overstated in the current year. Compare commission rates with number of sales to see if there was, indeed, an increase in sales in the current year.
2. There could be too much inventory. A physical count of inventory should be done to ensure that this is the cause of the decrease in inventory turnover. Another
3. Surplus of outdated inventory. A physical count of inventory should be used to ensure that inventory is not overstated.
4. Estimated less allowance of doubtful accounts,