Introduction: Inventory includes raw materials, work-in-process goods and finished products which are held with the purpose of sale.
Case 1: T J International
Given: TJ International is a manufacturer of specialty building products. T J International’s adapted income statement and information concerning inventories from its annual report is provided in the question statement.
(a)
To determine how much would income before taxes have been if FIFO costing had been used to value all inventories.
(b)
To explain: To explain the income tax rate is 46.6%, what would income tax have been if FIFO costing had been used to value all inventories. In your opinion, is this difference in net income between the two methods material. Explain.
(c)
To explain: To explain the use of a different costing system for different types of inventory mean that there is a different physical flow of goods among the different types of inventory.
Case 2: N Pharmaceuticals, Inc.
Given: Description of N Pharmaceuticals has been provided in the question.
(a)
To explain: To explain what would you expect from the physical flow of goods for a pharmaceutical manufacturer to be like.
(b)
To state: To state the factors to be considered while selecting the inventory system.
(c)
To determine the reason for not including the amount of inventory used in stock of inventory.
Case 3: The K Company
Given: Data for K Company reported in its annual report, has been provided in the question.
(a)
To compute: To compute K’s inventory turnovers using:
(1) Cost of sales and LIFO inventory.
(2) Cost of sales and FIFO inventory.
(b)
To compute: To calculate turnover, using:
(1) Sales and LIFO inventory.
(2) Sales and FIFO inventory.
(c)
To state: To state which method you would choose to evaluate K’s performance. Justify your choice.
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