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Inventory:
Inventory refers to the stock or goods which will be sold in the near future and thus is an asset for the company. It comprises of the raw materials which are yet to be processed, the stock which is still going through the process of production and it also includes completed products that are ready for sale. Thus inventory is the biggest and the important source of income and profit for the business.
Lower of Cost or Market:
Lower of cost or market also known as LCM is an approach in which the inventory is recorded in the
Cost:
The cost of the inventory herein means the net value incurred to get the inventory ready for sale.
Market Value:
Market value in the lower of cost or market approach is the cost related to replacement, exchange or substitution of the inventory of the company.
Cost of Goods Sold (COGS) or Cost of Sales:
Cost of goods sold is the total expenses or the cost incurred by the business during the process of manufacturing of goods and is directly related to the production. It generally includes the cost of raw material, labor and other
Inventory Turnover Ratio:
It depicts the fraction of inventory sold or used by the company within a fiscal year. It states a ratio which shows the number of times goods were sold during an accounting period which thereby states the productivity or the efficiency level of the company regarding the inventory which apparently is the biggest asset for the company.
Days’ Sales in Inventory:
It indicates the days taken up by the company to convert the stock items into actual sales.
Part A
1. The ending inventory when lower of cost or market is applied to the ending inventory as a whole and adjusts the reported inventory.
2. The ending inventory when lower of cost or market is applied to each of the product and adjusts the reported inventory.
Part B
1. Inventory turnover and days’ sales in inventory for the three months ended March 31, 2018.
2. Company’s performance as compared to others with the help of the above result and the given data.
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Chapter 5 Solutions
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