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.
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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text: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 Statement:
December 31
2021 2020
(millions of dollars)
Net Sales
150 120
Cost of Goods Sold
110
95
Selling, General and Administrative
15
15
Expenses
Other operating expenses
10
15
Net income
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.
December 31
Inventory
(millions of dollars) 2021 2020
Raw materials
Work in process
Finished products
Total
10
14
11
13
9
7
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.
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