Accounting (Text Only)
26th Edition
ISBN: 9781285743615
Author: Carl Warren, James M. Reeve, Jonathan Duchac
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
Chapter 7, Problem 7.4CP
Inventory ratios for Dell and HP
Dell Inc. and Hewlett-Packard Development Company, L.P. (HP) are both manufacturers of computer equipment and peripherals. However, the two companies follow two different strategies. Dell follows primarily a build-to-order strategy, where the consumer orders the computer from a Web page. The order is then manufactured and shipped to the customer within days of the order. In contrast, HP follows a build-to-stock strategy, where the computer is first built for inventory, then sold from inventory to retailers, such as Best Buy. The two strategies can be seen in the difference between the inventory turnover and number of days’ sales in inventory ratios for the two companies. The following financial statement information is provided for Dell and HP for a recent fiscal year (in millions):
a. Determine the inventory turnover ratio and the number of days’ sales in inventory ratio for each company. Use 365 days and round to one decimal place.
b. Interpret the difference between the ratios for the two companies.
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
QT, Inc. and Elppa Computers, Inc. compete with each other in the personal computer market. QT assembles computers to customer orders, building and delivering a computer within four days of a customer entering an order online. Elppa, on the other hand, builds computers for inventory prior to receiving an order. These computers are sold from inventory once an order is received. Selected financial information for both companies from recent financial statements follows (in millions):
QT
Elppa
Sales
$35,040
$46,400
Cost of goods sold
29,200
43,800
Inventory, beginning of period
932
4,028
Inventory, end of period
1,132
4,828
a. Determine for both companies (1) the inventory turnover and (2) the number of days' sales in inventory. Round your calculations and answers to one decimal place. Assume 365 days a year.
(refer to image)
b. QT has a ______ (higher/lower) inventory turnover ratio than does Elppa Company. Likewise, QT has a _____ (larger/smaller) number…
ST is adistribution company which buys a product in bulk from manufacturers, repackages the product into smaller packs and then sells the packs to retail customers. ST’s customers vary in size and consequently the size and frequency of their orders also varies. Some customers order large quantities from ST each time they place an order. Other customers order only a few packs each time.
The current accounting system of ST produces very basic management information that reports only the overall company profit. ST is therefore unaware of the costs of servicing individual customers. However, the company has now decided to investigate the use of Direct Customer Profitability Analysis (DCPA). ST would like to see the results from a small sample of customers before it decides whether to fully introduce DCPA.
The information for two customers, and for the whole company, for the previous period was as follows:…
What is the relevant cost of purchasing from Alpha and Beta?
Chapter 7 Solutions
Accounting (Text Only)
Ch. 7 - Prob. 1DQCh. 7 - Why is it important to take a physical inventory...Ch. 7 - Do the terms FIFO, LIFO, and weighted average...Ch. 7 - If merchandise inventory is being valued at cost...Ch. 7 - Which of the three methods of inventory...Ch. 7 - If inventory is being valued at cost and the price...Ch. 7 - Using the following data, how should the...Ch. 7 - The inventory at the end of the year was...Ch. 7 - Hutch Co. sold merchandise to Bibbins Company on...Ch. 7 - A manufacturer shipped merchandise to a retailer...
Ch. 7 - Cost flow methods The following three identical...Ch. 7 - Cost flow methods The following three identical...Ch. 7 - Perpetual inventory using FIFO Beginning...Ch. 7 - Perpetual inventory using FIFO Beginning...Ch. 7 - Perpetual inventory using LIFO Beginning...Ch. 7 - Perpetual inventory using LIFO Beginning...Ch. 7 - Perpetual inventory using weighted average...Ch. 7 - Perpetual inventory using weighted average...Ch. 7 - Periodic inventory using FIFO, LIFO, and weighted...Ch. 7 - Periodic inventory using FIFO, LIFO, and weighted...Ch. 7 - Lower-of-cost-or-market method On the basis of the...Ch. 7 - Prob. 7.6BPECh. 7 - Prob. 7.7APECh. 7 - Prob. 7.7BPECh. 7 - Prob. 7.8APECh. 7 - Prob. 7.8BPECh. 7 - Control of inventories Triple Creek Hardware Store...Ch. 7 - Control of inventories Hardcase Luggage Shop is a...Ch. 7 - Perpetual inventory using FIFO Beginning...Ch. 7 - Perpetual inventory using LIFO Assume that the...Ch. 7 - Perpetual inventory using LIFO Beginning...Ch. 7 - Perpetual inventory using FIFO Assume that the...Ch. 7 - FIFO and LIFO costs under perpetual inventory...Ch. 7 - Weighted average cost flow method under perpetual...Ch. 7 - Weighted average cost flow method under perpetual...Ch. 7 - Perpetual inventory using FIFO Assume that the...Ch. 7 - Perpetual inventory using LIFO Assume that the...Ch. 7 - Prob. 7.12EXCh. 7 - Periodic inventory by three methods; cost of...Ch. 7 - Comparing inventory methods Assume that a firm...Ch. 7 - Lower-of-cost-or-market inventory On the basis of...Ch. 7 - Merchandise inventory on the balance sheet Based...Ch. 7 - Prob. 7.17EXCh. 7 - Prob. 7.18EXCh. 7 - Error in inventory During 2016, the accountant...Ch. 7 - Inventory turnover The following data (in...Ch. 7 - Inventory turnover and number of days' sales in...Ch. 7 - Retail method A business using the retail method...Ch. 7 - Retail method A business using the retail method...Ch. 7 - Retail method A business using the retail method...Ch. 7 - Retail method On the basis of the following data,...Ch. 7 - Gross profit method The merchandise inventory was...Ch. 7 - Gross profit method Based on the following data,...Ch. 7 - Gross profit method Based on the following data,...Ch. 7 - FIFO perpetual inventory The beginning inventory...Ch. 7 - LIFO perpetual inventory The beginning inventory...Ch. 7 - Weighted average cost method with perpetual...Ch. 7 - Prob. 7.4APRCh. 7 - Prob. 7.5APRCh. 7 - Lower-of-cost-or-market inventory Data on the...Ch. 7 - Retail method; gross profit method Selected data...Ch. 7 - FIFO perpetual inventory The beginning inventory...Ch. 7 - LIFO perpetual inventory The beginning inventory...Ch. 7 - Weighted average cost method with perpetual...Ch. 7 - Periodic inventory by three methods The beginning...Ch. 7 - Periodic inventory by three methods Pappas...Ch. 7 - Lower-of-cost-or-market inventory Data on the...Ch. 7 - Retail method; gross profit method Selected data...Ch. 7 - Prob. 7.1CPCh. 7 - LIFO and inventory flows The following is an...Ch. 7 - Costing inventory Golden Eagle Company began...Ch. 7 - Inventory ratios for Dell and HP Dell Inc. and...Ch. 7 - Comparing inventory ratios for two companies...Ch. 7 - Prob. 7.6CP
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Profit margins and turnover ratios vary from one industry to another. What differenceswould you expect to find between the turnover ratios, profit margins, and DuPont equationsfor a grocery chain and a steel company?arrow_forwardWhat factors other than cost should Peach consider?arrow_forwardWilson Industries and Cargill Corporation are two similarly sized companies. Wilson is a merchandising company, whereas Cargill is a manufacturing company. Based on this information, what types of inventory would you expect each company to have? O Wilson will have finished goods, work in process, and raw materials, while Cargill will have only merchandise inventory. Both Wilson and Cargill will have only merchandise inventory. O Wilson will have only merchandise inventory, while Cargill will have finished goods, work in process, and raw materials. O Both Wilson and Cargill will have finished goods, work in process, and raw materials.arrow_forward
- Amazon.com, Inc. (AMZN) is one of the largest Internet retailers in the world. Target Corporation (TGT) is one of the largest value-priced general merchandisers operating in the United States. Target sells through nearly 1,800 brick-and-mortar stores and through the Internet. Amazon and Target compete for customers across a wide variety of products, including media, general merchandise, apparel, and consumer electronics. Cost of goods sold and inventory information from a recent annual report are provided for both companies as follows (in millions): a. Compute the inventory turnover for both companies. Round all calculations to one decimal place. b. Compute the number of days sales in inventory for both companies. Use 365 days and round all calculations to one decimal place. c. Which company has the better inventory efficiency? d. What might explain the difference in inventory efficiency between the two companies?arrow_forwardABC Corporation is a mid-sized manufacturing company that has recently decided to switch from a traditional inventory system to a Just-in-Time (JIT) inventory system. The company is concerned about the potential risks and benefits of this switch. They have traditionally kept large amounts of raw materials on hand to ensure smooth production. However, the management believes that JIT can help reduce carrying costs and improve efficiency. What are the key risks ABC Corporation should consider with the JIT system? How can the company mitigate these risks while maximizing the benefits of JIT? On December 31, 2023, Archer Daniels Midland Company (ADM) purchased new manufacturing equipment for $850,000, which had an estimated useful life of 10 years and a salvage value of $50,000. The company uses the straight-line depreciation method for all its equipment. During a review in June 2024, ADM's management discovered that the equipment's useful life should actually be 8 years, with a salvage…arrow_forwardSilver Limited is a manufacturing company that produces furniture. To improve efficiency and usefulness, Silver Limited is constantly incorporating advanced, information technology into its business information systems. When Silver Limited does not have available production capacity, sometimes it purchases furniture from outside suppliers to fulfill customer orders. First, Inventory Control prepares a purchase requisition when inventory approaches the reorder point and sends it to Purchasing and Accounts Payable. Then, Purchasing locates the authorized vendor in the vendor file, prepares a purchase order, and updates the purchase order file. Purchasing then sends the purchase order to Vendor, Receiving, and Accounts Payable. Accounts Payable prepares a summary of all purchase orders issued that day and forwards the total to General Ledger for posting to the GL file. Goods arrive at Receiving with a packing slip. Receiving prepares a receiving report and forwards it with the goods to…arrow_forward
- Silver Limited is a manufacturing company that produces furniture. To improve efficiency and usefulness, Silver Limited is constantly incorporating advanced, information technology into its business information systems. When Silver Limited does not have available production capacity, sometimes it purchases furniture from outside suppliers to fulfill customer orders. First, Inventory Control prepares a purchase requisition when inventory approaches the reorder point and sends it to Purchasing and Accounts Payable. Then, Purchasing locates the authorized vendor in the vendor file, prepares a purchase order, and updates the purchase order file. Purchasing then sends the purchase order to Vendor, Receiving, and Accounts Payable. Accounts Payable prepares a summary of all purchase orders issued that day and forwards the total to General Ledger for posting to the GL file. Goods arrive at Receiving with a packing slip. Receiving prepares a receiving report and forwards it with the goods to…arrow_forwardThe Camera Shop sells two popular models of digital SLR cameras (Camera A Price: 230, Camera B Price: 310). The sales of these products are not independent of each other, but rather if the price of one increase, the sales of the other will increase. In economics, these two camera models are called substitutable products. The store wishes to establish a pricing policy to maximize revenue from these products. A study of price and sales data shows the following relationships between the quantity sold (N) and prices (P) of each model: NA = 192 - 0.5PA + 0.25PB NB = 305 + 0.08PA - 0.6PB Construct a model for the total revenue and implement it on a spreadsheet. Develop a two-way data table to estimate the optimal prices for each product in order to maximize the total revenue. Vary each price from $250 to $500 in increments of $10. Max profit occurs at Camera A price of $ . Max profit occurs at Camera B price of $ .arrow_forwardThe Aztec Company stocks a variety of parts and materi-als it uses in its manufacturing processes. Recently, as de-mand for its finished goods has increased, management has had difficulty managing parts inventory; they fre-quently run out of some crucial parts and seem to have an endless supply of others. In an effort to control inventory more effectively, they would like to classify their inven-tory of parts according to the ABC approach. Following is a list of selected parts and the annual usage and unitvalue for each:Classify the inventory items according to the ABC ap-proach using dollar value of annual demand.arrow_forward
- You are a newly hired accountant for Sushi Beeber, Inc., a retail company specializing in apparel for small pets. The company would like to expand its apparel line to include sweaters for cats. Sushi Beeber has found several manufacturers that offer competitive prices to ensure cost of goods sold is low. Because the company receives merchandise from different manufacturers and the cat sweaters will be commoditized, the company needs to develop an internal accounting system to keep track of inventory cost. You think that the weighted average cost method may help the company stay up-to-date with the inventory cost as purchase cost changes over time. Your task is to create a spreadsheet that can calculate the inventory cost based on purchases and sales for the month. See attached spreadsheet.-this has the information you need! The chart below is what I need to fill in. Inventory Weighted Date Purchase/Sale Total Cost Average Cost 1-Oct Purchase 1-Oct Sale 3-Oct…arrow_forwardYou are a newly hired accountant for Sushi Beeber, Inc., a retail company specializing in apparel for small pets. The company would like to expand its apparel line to include sweaters for cats. Sushi Beeber has found several manufacturers that offer competitive prices to ensure cost of goods sold is low. Because the company receives merchandise from different manufacturers and the cat sweaters will be commoditized, the company needs to develop an internal accounting system to keep track of inventory cost. You think that the weighted average cost method may help the company stay up-to-date with the inventory cost as purchase cost changes over time. Your task is to create a spreadsheet that can calculate the inventory cost based on purchases and sales for the month. See attached spreadsheet. nventory Weighted Date Purchase/Sale Total Cost Average Cost 1-Oct Purchase 1-Oct Sale 3-Oct Purchase 4-Oct Sale 4-Oct Sale 4-Oct Purchase 7-Oct Sale…arrow_forwardYou are a newly hired accountant for Sushi Beeber, Inc., a retail company specializing in apparel for small pets. The company would like to expand its apparel line to include sweaters for cats. Sushi Beeber has found several manufacturers that offer competitive prices to ensure cost of goods sold is low. Because the company receives merchandise from different manufacturers and the cat sweaters will be commoditized, the company needs to develop an internal accounting system to keep track of inventory cost. You think that the weighted average cost method may help the company stay up-to-date with the inventory cost as purchase cost changes over time. Your task is to create a spreadsheet that can calculate the inventory cost based on purchases and sales for the month. To help you get started, the file already has a list of columns for you to fill out. Row 2 has the beginning inventory. Starting with row 3, you need to fill in each field so that you can find the updated inventory total…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Financial AccountingAccountingISBN:9781305088436Author:Carl Warren, Jim Reeve, Jonathan DuchacPublisher:Cengage Learning
Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College Pub
- Century 21 Accounting Multicolumn JournalAccountingISBN:9781337679503Author:GilbertsonPublisher:Cengage
College Accounting (Book Only): A Career ApproachAccountingISBN:9781337280570Author:Scott, Cathy J.Publisher:South-Western College Pub
Principles of Cost AccountingAccountingISBN:9781305087408Author:Edward J. Vanderbeck, Maria R. MitchellPublisher:Cengage Learning
Financial Accounting
Accounting
ISBN:9781305088436
Author:Carl Warren, Jim Reeve, Jonathan Duchac
Publisher:Cengage Learning
Managerial Accounting
Accounting
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:South-Western College Pub
Century 21 Accounting Multicolumn Journal
Accounting
ISBN:9781337679503
Author:Gilbertson
Publisher:Cengage
College Accounting (Book Only): A Career Approach
Accounting
ISBN:9781337280570
Author:Scott, Cathy J.
Publisher:South-Western College Pub
Principles of Cost Accounting
Accounting
ISBN:9781305087408
Author:Edward J. Vanderbeck, Maria R. Mitchell
Publisher:Cengage Learning
What is Business Analysis?; Author: WolvesAndFinance;https://www.youtube.com/watch?v=gG2WpW3sr6k;License: Standard Youtube License