424
Problem 6-8BA (Concluded)
Part 2
If Shepard Company had been experiencing decreasing costs in the
Part 3
Advantages
LIFO: Assuming a trend of increasing costs, the advantage of using LIFO is
Disadvantages
LIFO: Assuming a trend of increasing costs, the disadvantage of using
425
Problem 6-9BB (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 ……………………………….
Less: Sales returns …………………………………………..
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* …………………………………………….
426
Problem 6-10BB (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 …………………………...
Less estimated cost of goods sold
Sales …………………………..…………………………...
Less sales returns ……………………………………
Net sales ………………………………………………….
Estimated cost of goods sold
[$3,680,960 x (1 – 35%)] …………………………
SERIAL PROBLEM — SP 6
Serial Problem — SP 6, Business Solutions (20 minutes)
Part A
1.
Per Unit
Total
Total
Inventory Items
Units
Cost
Market
Cost
Market
Desktop publishing……….
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Serial Problem — SP 6, 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
$222
Part B
1. Ratio computations for the three months ended March 31, 2018:
Inventory Turnover = Cost of Goods Sold / Average Inventory
2
3
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Reporting in Action — BTN 6-1
($ millions for all parts)
3. Apple’s inventories are its smallest asset in 2014 and 2015. Most of
4. Reviewing notes to its financial statements, we see from Note 1 under
5. a. Inventory turnover =
6. Solution depends on the financial statement information obtained.
Cost of sales
Average inventory
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Comparative Analysis — BTN 6-2
($ millions)
1. Inventory turnover =
Cost of sales
Average inventory
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Comparative Analysis (Concluded)
2. Days’ sales in inventory = x 365
3. In each of the last three years, Apple has managed its inventory more
efficiently than Microsoft. Apple’s inventory turnover is higher, and its
Ending Inventory
Costs of Goods Sold
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Ethics Challenge — BTN 6-3
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
sold is lower, then net income will be higher. A higher net income will
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
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Communicating in Practice — BTN 6-4
[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
Taking It to the Net — BTN 6-5
1. Apple designs, manufactures, and markets mobile communication and
2. Its summary of significant accounting policies (Note 1) reports:
3. Its gross margin for fiscal 2015 is ($ millions)
Sales ……………………………………………………………
$ 233,715
4. 2015 Inventory turnover =
$140,089 mil./ [($2,349 mil. + $2,111 mil.)/2] = 62.8 times
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433
Teamwork in Action — BTN 6-6
Concepts and procedures to illustrate in expert presentation:
Specific Identification Expert:
(a) and (b) Concept:
Purchases are always recorded at the actual specific costs. The specific
(a) and (b) Procedures:
Date
Goods Purchased
Cost of Goods Sold
Inventory Balance
Jan. 1
50 @ $100 = $ 5,000
Jan.10
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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
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435
Teamwork in Action (Continued)
FIFO 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
20 @ $100 = $ 2,000
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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*
(270 +300)
Oct. 5
350 @ $172.342 = $60,320
220 @ $172.342* =
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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
(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
(e) Valuation
Typical comments experts may express in response to (e):
FIFO tends to value ending inventory closest to replacement cost whereas
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Entrepreneurial Decision — BTN 6-7
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 owners’ proposal for their company would yield a much improved
inventory turnover of 8 vis-à-vis the current turnover of 4. On the
downside, its days’ sales in inventory would dramatically decline from
Hitting the Road — BTN 6-8
There is no formal solution for this field activity. The required solution
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 6
Global Decision — BTN 6-9
1. Inventory turnover =
Current year — Samsung (in millions of Korean won):
Inventory Turnover
Days’ Sales in Inventory
Company
Current
Prior Year
Current
Prior Year
Samsung …………………………..
6.84
7.04
55.61
49.27
Apple…………………………………………..
62.8
57.9
2. For both the current year and prior year, Apple has the highest
inventory turnover and the lowest days’ sales in inventory. For both
Cost of sales
Average inventory
₩ 123,482,118