Purchases vs. Cost of goods sold

[drawar]

Hi, can anyone be kind enough to help me out with this assignment please:

Beginning Inventory (Jan 2012): 679,935
Ending Inventory (Jan 2013): 426,962
Cost of goods sold: 1,694,096
(all the figures are in thousands of USD)

From the data above:
1. Compute the amount of merchandise inventory purchased for the year 2012. Assume 90% of the costs listed under "Cost of goods sold” are cost of merchandise.
2. Compare purchases to cost of goods sold and state any conclusions about the company’s operations, given the company operates as a retailer.

The first question is quite straightforward, I can do it on the spot: Net purchase = Ending Inventory + Cost of merchandise - Beginning Inventory = 426,962+1,694,096*90%-679,935=1,271,718.4.
However I'm stuck at question 2. Based on the computation done in question 1, Net purchase < Cost of goods sold, but does it tell you anything about the company's operations?
Any help is very much appreciated, thank you!

 

[mike99]

In this case, cost of goods sold includes all costs incurred that have been allocated to the inventory that has been sold.

So if your purchases amount is close to your COGS amount, then little additional costs (over and above purchases) were incurred by the company.

If your purchases amount is relatively small to your COGS amount, then the company incurred many other costs, such as labour and overheads, to get the inventory to a ready-for-sale condition.

Then apply this to the scenario: clearly the retailer has little additional costs over and above those incurred through purchases. Think about why.