Problem 5-9BB (25 minutes)
Part 1
MACKLIN COMPANY
Estimated Inventory
December 31
At Cost At Retail
Goods available for sale
Beginning inventory ………………………………………
$ 90,022
$115,610
Cost of goods purchased ……………………………….
Net sales …………………………………………………………
Part 2
MACKLIN COMPANY
Inventory Shortage
December 31
At Cost At Retail
Estimated inventory (from part 1) ……………………….
$66,555.00
$98,600.00
Physical inventory* …………………………………………….
Problem 5-10BB (25 minutes)
OTINGO EQUIPMENT CO.
Estimated Inventory at March 31
At Cost
At Retail
Goods available for sale
Inventory, January 1 …………………………………
$ 802,880
Cost of goods purchased ………………………….
Goods available for sale …………………………...
Net sales ………………………………………………….
Estimated cost of goods sold
[$3,680,960 x (1 – 35%)] …………………………
SERIAL PROBLEM — SP 5
Serial Problem — SP 5, Business Solutions (20 minutes)
Part A
1.
Per Unit
Total
Total
Inventory Items
Units
Cost
Market
Cost
Market
Office productivity ………..
3
$ 76
$ 74
$228
$222
Desktop publishing……….
2
3
Serial Problem — SP 5, Business Solutions (concluded)
2.
Per Unit
Total
Total
LCM Applied
Inventory Items
Units
Cost
Market
Cost
Market
To Items
Office productivity ……..
3
$ 76
$ 74
$228
$222
$222
2
3
Part B
1. Ratio computations for the three months ended March 31, 2017:
Inventory Turnover = Cost of Goods Sold / Average Inventory
2. Business Solutions outperforms its competitors on both ratios. Its
Reporting in Action — BTN 5-1
($ millions for all parts)
1. Ending inventories at September 27, 2014: 2,111.
3. Apple’s inventories are its smallest asset at September 27, 2014. The
4. Reviewing notes to its financial statements, we see from Note 1 under
5. a. Inventory turnover =
b. Days’ sales in inventory = x 365
Cost of sales
Average inventory
Ending inventory
Cost of sales
Comparative Analysis — BTN 5-2
($ thousands)
1. Inventory turnover =
Apple — current year
$112,258
Inventory turnover = ($2,111 + $1,764) / 2 = 57.9 times
Cost of sales
Average inventory
Comparative Analysis (Concluded)
2. Days’ sales in inventory = x 365
Current year — Apple’s days’ sales in inventory
= ($2,111/$112,258) x 365 = 6.86 days
Current year — Google’s days’ sales in inventory
3. For the most recent year, Apple manages its inventory less efficiently
than in prior years. Google’s inventory turnover and days in sales has
Ending Inventory
Costs of Goods Sold
Ethics Challenge — BTN 5-3
1. Profit Margin: In an economic environment of rising costs, the use of
FIFO results in a lower cost of goods sold than LIFO. If cost of goods
2. First, it is true that managers have discretion in choosing an inventory
costing method. It appears, however, that Golf Challenge’s owner does
not understand that changing methods can only be done very
Communicating in Practice — BTN 5-4
[Note: An acceptable memorandum format should be used.]
The body of the memo would likely recommend use of the LIFO method for
this start-up business. The memo should explain that this would allow for
the matching of the most recent (higher) costs against revenue through
Taking It to the Net — BTN 5-5
1. Apple designs, manufactures, and markets mobile communication and
media devices, personal computers, and portable digital music players.
2. Its summary of significant accounting policies (Note 1) reports:
3. Its gross margin for fiscal 2014 is ($ millions)
Sales ……………………………………………………….…..
$ 182,795
4. 2014 Inventory turnover*
$112,258/ [($2,111 + $1,764)/2] = 57.9 times
Teamwork in Action — BTN 5-6
Concepts and procedures to illustrate in expert presentation:
Specific Identification Expert:
(a) and (b) Concept:
(a) and (b) Procedures:
Date
Goods Purchased
Cost of Goods Sold
Inventory Balance
Jan. 1
50 @ $100 = $ 5,000
Jan.10
30 @ $ 100 = $ 3,000
20 @ $100 = $ 2,000
Teamwork in Action (Continued)
LIFO Expert:
(a) and (b) Concept:
Purchases are always recorded at actual costs. The LIFO cost flow
(a) and (b) Procedures:
Date
Goods Purchased
Cost of Goods Sold
Inventory Balance
Jan. 1
50 @ $100 = $ 5,000
Jan.10
30 @ $100 = $ 3,000
20 @ $100 = $ 2,000
Teamwork in Action (Continued)
FIFO Expert:
(a) and (b) Concept:
Purchases are always recorded at actual costs. The FIFO cost flow
(a) and (b) Procedures:
Date
Goods Purchased
Cost of Goods Sold
Inventory Balance
Jan. 1
50 @ $100 = $ 5,000
Jan.10
30 @ $100 = $ 3,000
20 @ $100 = $ 2,000
Teamwork in Action (Continued)
Weighted Average Expert:
(a) and (b) Concept:
Purchases are always recorded at actual costs. The Weighted Average
cost flow assumption requires units sold be assigned a cost based on
(a) and (b) Procedures:
Date
Goods Purchased
Cost of Goods Sold
Inventory Balance
Jan. 1
50 @ $100 = $ 5,000
Jan.10
30 @ $100 = $ 3,000
20 @ $100 = $ 2,000
Feb.15
100 @ $117.647 = $11,765*
70 @ $117.647 = $ 8,235*
($38,235+$60,000)/(270+300)
Oct. 5
Teamwork in Action (Concluded)
(c) Cost Flow versus Actual Physical Flow
Typical comments experts may express in response to (c):
• Physical flow of goods can be affected by the type of products in
More Specific Expert Comments to (c):
Specific Identification—Always reflects the actual cost flow. Electronic
scanning has increased the ability to use this method in businesses that sell
homogeneous goods.
Weighted Average—This cost is rarely the actual cost flow. This would
require the mixing or combining of units on hand. This is possible for
inventory such as oil but it still unlikely that the actual blending would be as
complete as the averaging of costs.
(d) Impact of Methods
Typical comments experts may express in response to (d):
In a period of rising prices LIFO will generally result in the highest cost of
goods sold and therefore the lowest net income and lowest tax. However,
LIFO must be used for financial reporting if it is used for tax purposes.
or lower priced items.
(e) Valuation
Typical comments experts may express in response to (e):
FIFO tends to value ending inventory closest to replacement cost whereas
LIFO does not. Weighted average tends to value inventory between old and
Entrepreneurial Decision — BTN 5-7
Part 1
(a) Current inventory turnover = $120,000 / $30,000 = 4 times
(b) Proposed inventory turnover = $120,000 / $15,000 = 8 times
Part 2
The owner’s proposal for the company would yield a much improved
inventory turnover of 8 vis-à-vis the current turnover of 4. On the
Hitting the Road — BTN 5-8
There is no formal solution for this field activity. The required solution
does allow students to see the relevance of studying merchandise
activities and inventory accounting.
Global Decision — BTN 5-9
1. Inventory turnover =
Current year — Samsung (in millions of Korean won):
Days’ sales in inventory = x 365
Current year —Samsung days’ sales in inventory (in mil. of Korean won):
Inventory Turnover
Days’ Sales in Inventory
Company
Current
Prior Year
Current
Prior Year
Samsung …………………………..
7.04
7.47
49.27
50.72
Apple…………………………………………..
57.9
83.4
2. For the current year, Google has the highest inventory turnover and the
lowest days’ sales in inventory. For the prior year, Apple has the
Cost of sales
Average inventory
Ending Inventory
Costs of Goods Sold