Norwood Company makes miniature circuit boards that are components of wireless phones and personal organizers. The company has experienced strong growth, and you are especially interested in how well Norwood is managing its inventory balances. You have collected the following information for the current year. Inventory at the beginning of year $ 1,026,000 Inventory at the end of year, before any adjustments 1,007,000 Total cost of goods sold, before any adjustments 11,776,000 The company values inventory at lower-of-cost (using LIFO cost flow assumption)-or-market; use the cost-of-goods-sold method. Instructions a. Compute Norwood’s inventory turnover before any adjustment. b. Recompute the inventory turnover after adjusting Norwood’s inventory information for the following items. 1. During the year, Norwood recorded sales and costs of goods sold on $22,000 of units shipped to various wholesalers on consignment. At year-end, none of these units have been sold by wholesalers. 2. Shipping contracts changed 2 months ago from f.o.b. shipping point to f.o.b. destination point. At the end of the year, $25,000 of products are en route to China and will not arrive until after financial statements are released. Current inventory balances do not reflect this change in policy. 3. At the end of the year, Norwood determined that a certain section of inventory with an historical cost of $112,000 has a replacement cost of $100,800, net realizable value of $101,000 and net realizable value less a normal profit margin of $90,400. There is no need to make a lower-of-cost-or-market adjustment to other inventory.
Norwood Company makes miniature circuit boards that are components of wireless phones and personal organizers. The company has experienced strong growth, and you are especially interested in how well Norwood is managing its inventory balances. You have collected the following information for the current year.
| Inventory at the beginning of year |
$ 1,026,000
|
| Inventory at the end of year, before any adjustments |
1,007,000
|
| Total cost of goods sold, before any adjustments |
11,776,000
|
The company values inventory at lower-of-cost (using LIFO cost flow assumption)-or-market; use the cost-of-goods-sold method.
Instructions
a. Compute Norwood’s inventory turnover before any adjustment.
b. Recompute the inventory turnover after adjusting Norwood’s inventory information for the following items.
1. During the year, Norwood recorded sales and costs of goods sold on $22,000 of units shipped to various wholesalers on consignment. At year-end, none of these units have been sold by wholesalers.
2. Shipping contracts changed 2 months ago from f.o.b. shipping point to f.o.b. destination point. At the end of the year, $25,000 of products are en route to China and will not arrive until after financial statements are released. Current inventory balances do not reflect this change in policy.
3. At the end of the year, Norwood determined that a certain section of inventory with an historical cost of $112,000 has a replacement cost of $100,800, net realizable value of $101,000 and net realizable value less a normal profit margin of $90,400. There is no need to make a lower-of-cost-or-market adjustment to other inventory.
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