Financial Reporting, Financial Statement Analysis and Valuation
8th Edition
ISBN: 9781285190907
Author: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher: Cengage Learning
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Chapter 9, Problem 20PC
A large manufacturer of truck and car tires recently changed its cost-flow assumption method for inventories at the beginning of 2014. The manufacturer has been in operation for almost 40 years, and for the last decade it has reported moderate growth in revenues. The firm changed from the LIFO method to the FIFO method and reported the following information (amounts in millions):
REQUIRED
Calculate the inventory turnover ratio for 2014 using the LIFO and FIFO cost-flow assumption methods. Explain why the costs assigned to inventory under LIFO at the end of 2013 and 2014 are so much less than they are under FIFO.
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The management of Gresa Inc. is reevaluating the appropriateness of using its present inventory cost flow method, which is average-cost. The company requests your help in determining the results of operations for 2017 if either the FIFO or the LIFO method had been used. For 2017, the accounting records show these data:
Inventories
Purchases and Sales
Beginning (7,000 units)
$14,000
Total net sales (236,000 units)
$1,038,400
Ending (21,000 units)
Total cost of goods purchased (250,000 units)
596,500
Purchases were made quarterly as follows.
Quarter
Units
Unit Cost
Total Cost
1
65,000
$2.20
$143,000
2
55,000
2.30
126,500
3
55,000
2.40
132,000
4
75,000
2.60
195,000
250,000
$596,500
Operating expenses were $150,000, and the company’s income tax rate is 30%.
Prepare comparative condensed income statements for 2017 under FIFO and…
Hubble Space Incorporated has the following data which includes inventory conversion period or ICP of the firms against which it benchmarks. The firm's new manager is looking into the company on how he could reduce its inventory enough to reduce its ICP to the benchmarks’ average. If this were done, by how much would inventories decrease? Assume a 365-day year. Cost of goods sold =P85,000; Inventory =P20,000; Inventory conversion period (ICP) =85.88; Benchmark inventory conversion period (ICP) =38.00 *
Hubble Space Incorporated has the following data which includes
inventory conversion period or ICP of the firms against which it
benchmarks. The firm's new manager is looking into the company on how
he could reduce its inventory enough to reduce its ICP to the benchmarks'
average. If this were done, by how much would inventories decrease?
Assume a 365-day year. Cost of goods sold =P85,000; Inventory
=P20,000; Inventory conversion period (ICP) =85.88; Benchmark inventory
conversion period (ICP) =38.00 *
P 7,316
P11,151
P 9,032
P10,036
O P 8,129
Chapter 9 Solutions
Financial Reporting, Financial Statement Analysis and Valuation
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