Chapter 6: Reporting and Analyzing Inventory

1. Habseen Company
Habseen Company completed its inventory count. It arrived at a total
inventory value of $200,000. You have been given the information listed
below. Discuss how this information affects the reported cost of inventory.
a)

Habseen included in the inventory goods held on consignment for

Falls Co., costing $15,000.

b)

The company did not include in the count purchased goods of $10,000
which were in transit (terms: FOB shipping point).

c)

The company did not include in the count sold inventory with a cost of
$12,000 which was in transit (terms: FOB shipping point).

2. Shumway AG Implement
The accounting records of Shumway AG Implement show the following
data.
Beginning inventory
Purchases
Sales

4,000 units at $3
6,000 units at $4
7,000 units at $12

Determine (a) the cost of goods available for sale and (b) the cost of goods
sold during the period under a periodic system using (i) FIFO, (ii) LIFI and
(iii) average cost.

Fachbereich Elektrische
Energietechnik
Prof. Dr. Valerie Wulfhorst
Betriebswirtschaftslehre,
insb. Controlling
Telefon
02921 378-451
Telefax
02921 378-409
E-Mail
v.wulfhorst@fh-swf.de

Standort Soest
Lbecker Ring 2
59494 Soest

3. Tracy Company
Tracy Company sells three different types of home heating stoves (wood,
gas, and pellet). The cost and market value of its inventory of stoves are as
follows.
Gas
Wood
Pellet

Cost
$ 84,000
250,000
112,000

Market
$ 79,000
280,000
101,000

Fachhochschule
Sdwestfalen
Sitz: Iserlohn

Hagen
Iserlohn
Meschede
Soest
www.fh-swf.de

Determine the value of the companys inventory under the lower-of-cost-ormarket approach.

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4. Westmoreland Company
Early in 2010, Westmoreland Company switched a just-in-time inventory
system. Its sales, cost of goods sold, and inventory amounts for 2009 and
2010 are shown below.
Sales
Cost of goods sold
Beginning inventory
Ending Inventory

2009
$ 2,000,000
1,000,000
290,000
210,000

2010
$ 1,800,000
910,000
210,000
50,000

Determine the inventory turnover and days in inventory for 2009 and 2010.
Discuss the changes in the amount of inventory, the inventory turnover and
days in inventory, and the amount of sales across the two years.

5. Manitowoc Company
The Manitowoc Company is located in Manitowoc, Wisconsin. In recent
years it has made a series of strategic acquisitions to grow and enhance its
market-leading positions in each of its three business segments. These
include: cranes and related products (crawler cranes, tower cranes, and
boom trucks); food service equipment (commercial ice-cube machines, icebeverage dispensers, and commercial refrigeration equipment); and
marine operations (shipbuilding and ship-repair services). The company
reported inventory of $597.7 million for 2007 and $492.4 million for 2006.
Here is the inventory note taken from the 2007 financial statements.
THE MANTIWOC COMPANY
Notes to the Financial Statements
Inventories: The components of inventories are summarized December 31
as follows (in millions).
Inventories---gross
Raw materials
Work-in-process
Finished goods
Total
Less: Excess and obsolete inventory
reserve
Net inventories at FIFO cost
Less: Excess of FIFO costs over LIFO
value
Inventories---net

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2007

2006

$ 254.6
220.9
188.5

$ 198.3
174.2
187.2

664.0
(42.6)

559.7
(44.4)

621.4
(23.7)

515.3
(22.9)

$597.7

$492.4

Manitowoc carries inventory at the lower-of-cost-or-market using the firstin, first-out (FIFO) method for 88% and 85% of total inventory for 2007 and
2006, respectfully. The remainder of the inventory is costed using the lastin, first-out (LIFO) method.
Additional facts:
2007 Current liabilities
2007 Current assets
2007 Cost of goods sold

$ 1,074.6
1,575.6
3,093.4

Questions:
1.

Why does the company report its inventory in three components?

2.

Why might the company use two methods (LIFO and FIFO) to account
for its inventory?

3.

Perform each of the following:

(a) Calculate the inventory turnover ratio and days in inventory using
LIFO inventory.
(b) Show the conversion of the 2007 and 2006 LIFO values to FIFO
values.
(c) Calculate the 2007 current ratio using LIFO and then using FIFO.
Discuss the difference.

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