Chapter 6 Flashcards
Use the following information for Shafer Company to compute inventory turnover for year 2.
Year 2 Year 1
Net sales $653,500 $ 584,100
Cost of goods sold
$389,700 360,960
Ending inventory 78,900 80,580
4.89
Inventory Turnover = Cost of Goods Sold/Average Inventory
Inventory Turnover = $389,700/[($78,900 + $80,580)/2]
Inventory Turnover = $389,700/$79,740 = 4.89
Jefferson Company has net sales of $314,000 and cost of goods available for sale of $271,400. If the gross profit ratio is typically 30%, the estimated cost of the ending inventory under the gross profit method would be:
$51,600
If net sales for the period were $314,000 and the company’s typical gross profit ratio is 30%, gross profit would be approximately $94,200. That means that cost of goods sold must have been $219,800. Subtracting cost of goods sold of $219,800 from the $271,400 of cost of goods available for sale yields ending inventory of $51,600.
On March 31 a company needed to estimate its ending inventory to prepare its first quarter financial statements. The following information is available:
Beginning inventory, January 1: $4,900
Net sales: $78,000
Net purchases: $76,000
The company’s gross profit ratio is 30%. Using the gross profit method, the estimated ending inventory value would be:
$26,300
Beginning inventory + Purchases = Cost of Goods Available for Sale
$4,900 + $76,000 = $80,900
Cost of Goods Available for Sale − Estimated Cost of Goods Sold = Estimated Ending Inventory
$80,900 − (70% × $78,000) = Estimated Ending Inventory
$26,300 = Estimated Ending Inventory
On March 31 a company needed to estimate its ending inventory to prepare its first quarter financial statements. The following information is available:
Beginning inventory, January 1: $5,500
Net sales: $55,000
Net purchases: $56,000
The company’s gross profit ratio is 15%. Using the gross profit method, the cost of goods sold would be:
$46,750
85% × $55,000 = $46,750
Beckenworth had cost of goods sold of $9,921 million, ending inventory of $2,589 million, and average inventory of $2,015 million. Its days’ sales in inventory equals
Note: Use 365 days a year.
95.3 Days
Days’ Sales in Inventory = Ending Inventory/Cost of Goods Sold × 365
Days’ Sales in Inventory = $2,589/$9,921 × 365 = 95.3 days
Sandoval needs to determine its year-end inventory. The warehouse contains 40,000 units, of which 5,000 were damaged by flood and are not sellable. Another 4,000 units were purchased from Markor Company, FOB shipping point, and are currently in transit. The company also consigns goods and has 6,000 units at a consignee’s location. How many units should Sandoval include in its year-end inventory?
$45,000
40,000 − 5,000 + 4,000 + 6,000 = 45,000
Bedrock Company reported a December 31 ending inventory balance of $414,000. The following additional information is also available:
The ending inventory balance of $414,000 included $72,400 of consigned inventory for which Bedrock was the consignor.
The ending inventory balance of $414,000 incorrectly included $22,800 of office supplies that were stored in the warehouse and were to be used by the company’s supervisors and managers during the coming year.
Based on this information, the correct balance for ending inventory on December 31 is:
$391,200
Start with beginning inventory of $414,000. The information in the first bullet point was handled correctly since inventory should include consigned goods for which the subject company is the consignor. No adjustment. With respect to the second bullet point, inventory should not include office supplies held for use. Subtract $22,800. Ending inventory should be $414,000 − $22,800 = $391,200.
Giorgio had cost of goods sold of $9,577 million, ending inventory of $2,245 million, and average inventory of $2,121 million. Its inventory turnover equals:
4.52
Inventory Turnover = Cost of Goods Sold/Average Inventory
Inventory Turnover = $9,577/$2,121 = 4.52 times
T or F: Companies never take a physical count of inventory, but rather solely rely on inventory records to determine the inventory value.
False.
T or F: A company’s cost of inventory was $219,500. Due to increased demand, the market value of its inventory increased to $221,700. This company should adjust the inventory to its market value.
False.
T or F: The choice of an inventory costing method has little to no impact on gross profit and cost of sales.
False.
T or F: The cost of an inventory item includes its invoice cost minus any discount, plus any other costs, such as, shipping, storage, import duties, and insurance.
True.
