15Question 6: InventoriesAnswer the following three questions using the below information takenfrom the annual report of a US manufacturing firm. You can ignore taxesfor this exercise.Income Statement:December 312021 2020(millions of dollars)Net Sales150 120Cost of Goods Sold11095Selling, General and Administrative1515ExpensesOther operating expenses1015Net income15-5Inventories:Inventories are valued at the lower of cost or net realizable value. Themajority of our inventory is valued on the "last-in, first-out" (LIFO) basis,but inventories of certain subsidiaries are valued using the FIFO (“first-in,first-out") method.December 31Inventory(millions of dollars) 2021 2020Raw materialsWork in processFinished productsTotal10141113973034If inventories had been valued using only the FIFO method, inventorieswould have been $18 million and $12 million higher than reported atDecember 31, 2021 and 2020, respectively.A. Please calculateCOGS/Average Inventory) of this US manufacturing firm for 2021.the inventory turnover ratio (defined asB. If the US manufacturing firm had used only FIFO in both years,would the (pre-tax) net income have been higher or lower in 2021?Please compute the difference and justifv vour answer?Question 6 (Continued)c. Please calculate the inventory turnover ratio for 2021 under theassumption that the US manufacturing firm had been only usingFIFO inventory accounting for all its inventory ever since.

COGS is an abbreviation for Cost of goods sold, meaning cost incurred by the entity for making the…

15 Question 6: Inventories Answer the following three questions using the below information taken from the annual report of a US manufacturing firm. You can ignore taxes for this exercise. Income Stateтеnt: December 31 (millions of dollars) 2021 2020 Net Sales 150 120 110 95 Cost of Goods Sold Selling, General and Administrative Expenses Other operating expenses Net income 15 15 10 15 15 -5 Inventories: Inventories are valued at the lower of cost or net realizable value. The majority of our inventory is valued on the "last-in, first-out" (LIFO) basis, but inventories of certain subsidiaries are valued using the FIFO (“first-in, first-out") method. Inventory December 31 (millions of dollars) 2021 2020 Raw materials Work in process 10 14 1 13 Finished products 97 Total 30 34 If inventories had been valued using only the FIFO method, inventories would have been $18 million and $12 million higher than reported at December 31, 2021 and 2020, respectively. A. Please calculate COGS/Average Inventory) of this US manufacturing firm for 2021. the inventory turnover ratio (defined as B. If the US manufacturing firm had used only FIFO in both years, would the (pre-tax) net income have been higher or lower in 2021? Please compute the difference and justifv vour answer? Question 6 (Continued) c. Please calculate the inventory turnover ratio for 2021 under the assumption that the US manufacturing firm had been only using FIFO inventory accounting for all its inventory ever since.

14th Edition

ISBN:9781285595047

Author:Weil

Publisher:Weil

Chapter9: Working Capital

Section: Chapter Questions

Problem 21E