The following data (in thousands) were taken from recent annual reports of Apple Inc., a manufacturer of personal computers and related products, and American Greetings Corporation, a manufacturer and distributor of greeting cards and related products:

$$\begin{array}{lrr} & \textbf { Apple } & \textbf { American Greetings } \\ \hline \text { Cost of goods sold } & \$ 39,541,000 & \$ 682,368 \\ \text { Inventory, end of year } & 1,051,000 & 179,730 \\ \text { Inventory, beginning of the year } & 455,000 & 163,956 \end{array}$$

Would you expect American Greetings’ inventory turnover to be higher or lower than Apple’s? Why?

The following units of a particular item were available for sale during the calendar year:

The firm uses the weighted average cost method with a perpetual inventory system. Determine the cost of merchandise sold for each sale and the inventory balance after each sale. Present the data in the form illustrated in Exhibit 5.

Otingo Equipment Co. wants to prepare interim financial statements for the first quarter. The company wishes to avoid making a physical count of inventory. Otingo’s gross profit rate averages 35%. The following information for the first quarter is available from its records.

$$\begin{array}{lr} \text{January 1 beginning inventory}&\$802,880\\ \text{Cost of goods purchased}&2,209,636\\ \text{Sales}&3,760,260\\ \text{Sales returns}&79,300\\ \end{array}$$

Required Use the gross profit method to estimate the company’s first quarter ending inventory.

The Corner Frame Shop wants to know the effect of different inventory costing methods on its financial statements. Inventory and purchases data for June are:

$$\begin{array}{rlrrr} && \textbf{Units} & \textbf{Unit Cost} & \textbf{Total Cost}\\ \\ \text{Jun 1} & \text{Beginning inventory} & 2,500 & \$11.00 & \$27,500\\ 4 & \text{Purchase} & 1,800 & \$11.80 & 21,240\\ 9 & \text{Sale} & (1,900)\\ \end{array}$$

If The Corner Frame Shop uses the LIFO method, cost of goods sold will be

a. $21,200.

b.$21,240.

c. $20,900.

d.$22,340.

Langer Company produces plastic items, including plastic housings for humidifiers. Each housing requires about $15$ ounces of plastic costing $\$ 0.08$ per ounce. Langer molds the plastic into the proper shape. Langer has budgeted production of the housings for the next $4$ months as follows:

$$\begin{array}{lc} & \text{ Units } \\ \hline \text{ July } & 3,500 \\ \text{ August } & 4,400 \\ \text{ September } & 4,900 \\ \text{ October } & 6,300 \end{array}$$

Inventory policy requires that sufficient plastic be in ending monthly inventory to satisfy $20 \%$ of the following month's production needs. The inventory of plastic at the beginning of July equals exactly the amount needed to satisfy the inventory policy.

Prepare a direct materials purchases budget for July, August, and September, showing purchases in units and in dollars for each month and in total.

Allied Products maintains a large inventory. The company has used the LIFO inventory method for many years, during which the purchase costs of its products have risen substantially. (More than one of the following answers may be correct.)
a. Allied would have reported a higher net income in past years if it had been using the average-cost method.
b. Allied's financial statements imply a lower inventory turnover rate than they would if the company were using FIFO.
c. If Allied were to let its inventory fall far below normal levels, the company's gross profit rate would decline.
d. Allied would have paid more income taxes in past years if it had been using the FIFO method.

The following data (in thousands) were taken from recent annual reports of Apple Inc., a manufacturer of personal computers and related products, and American Greetings Corporation, a manufacturer and distributor of greeting cards and related products:

$$\begin{array}{lrr} & \textbf { Apple } & \textbf { American Greetings } \\ \hline \text { Cost of goods sold } & \$ 39,541,000 & \$ 682,368 \\ \text { Inventory, end of year } & 1,051,000 & 179,730 \\ \text { Inventory, beginning of the year } & 455,000 & 163,956 \end{array}$$

Determine the inventory turnover for Apple and American Greetings. Round to one decimal place.

The Flamingo Corporation is trying to determine the effect of its inventory turnover ratio and DSO on its cash flow cycle. Flamingo's 2015 sales (all on credit) were $180,000, and it earned a net profit of 5 percent, or $9,000. The cost of goods sold equals 85 percent of sales. Inventory was turned over eight times during the year, and the DSO, or average collection period, was 36 days. The firm had fixed assets totaling $40,000. Flamingo's payables deferral period is 30 days.

Suppose Flamingo's managers believe that the inventory turnover can be raised to 10$\times$. What would Flamingo's cash conversion cycle, total assets turnover, and ROA have been if the inventory turnover had been 10$\times$ for 2015?

A hospital must order the drug Porapill from Daisy Drug Company. It costs $500 to place an order and$30 to review the hospital’s inventory of the drug. Annual demand for the drug is N(10,000, 640,000), and it costs $5 to hold one unit in inventory for one year. Orders arrive one month after being placed. Assume that all shortages are backlogged. a. Estimate R and the number of orders per year that should be placed. b. Using the answer in part (a), determine the optimal (R, S) inventory policy. Assume that the shortage cost per unit of the drug is$100.

Sun Company is trying to determine the value of its ending inventory as of March 31, 2014, the company’s year-end. The following transactions occurred, and the accountant asked your help in determining whether they should be recorded or not.

(c) Sun had $750 of consigned goods from Frederick Inc.

Instructions

For each of the above transactions, specify whether the item in question should be included in ending inventory, and if so, at what amount. For each item that is not included in ending inventory, indicate who owns it and what account, if any, it should have been recorded in.

The following units of a particular item were available for sale during the calendar year:

The firm uses the weighted average cost method with a perpetual inventory system. Determine the cost of merchandise sold for each sale and the inventory balance after each sale. Present the data in the form illustrated in Exhibit 5.

Wayward Company wants to prepare interim financial statements for the first quarter. The company wishes to avoid making a physical count of inventory. Wayward’s gross profit rate averages 34%. The following information for the first quarter is available from its records.

$$\begin{array}{lr} \text{January 1 beginning inventory}&\$302,580\\ \text{Cost of goods purchased}&\$941,040\\ \text{Sales}&1,211,160\\ \text{Sales returns}&8,410\\ \end{array}$$

Required Use the gross profit method to estimate the company’s first quarter ending inventory.

Beginning inventory, purchases, and sales data for portable DVD players are as follows:

$$\begin{array}{rllll} \text{April 1}&&\text{Inventory }&&\text{120 units at \$39}\\ \text{6}&&\text{Sale}&&\text{\hspace{5pt}90 units}\\ \text{14}&&\text{Purchase }&&\text{140 units at \$40}\\ \text{19}&&\text{Sale }&&\text{110 units}\\ \text{25}&&\text{Sale }&&\text{\hspace{5pt}45 units}\\ \text{30}&&\text{Purchase }&&\text{160 units at \$43}\\ \end{array}$$

The business maintains a perpetual inventory system, costing by the first-in, first-out method.

b. Based upon the preceding data, would you expect the inventory to be higher or lower using the last-in, first-out method?

Financial statement data for years ending December 31 for Holland Company follow:

$$\begin{array}{lrr} & \mathbf{2 0 Y 4} & \mathbf{2 0 Y 3} \\ \hline \begin{array}{l} \text { Cost of merchandise sold } \\ \text { Inventories: } \end{array} & \$ 4,504,500 & \$ 3,715,200 \\ \quad \text { Beginning of year } & 788,000 & 760,000 \\ \quad \text { End of year } & 850,000 & 788,000 \end{array}$$

a. Determine the inventory turnover for $20 \mathrm{Y} 4$ and $20 \mathrm{Y} 3$.

b. Determine the days' sales in inventory for $20 \mathrm{Y} 4$ and 20Y3. Use 365 days and round to one decimal place.

c. Does the change in inventory turnover and the days' sales in inventory from $20 \mathrm{Y} 3$ to $20 \mathrm{Y} 4$ indicate a favorable or an unfavorable trend?