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REVIEW EXERCISES | CHAPTER 16—SECTION I
1. Calculate the total number of units available for sale and the cost of goods available
for sale from the following inventory of oil filters for Action Auto Parts:
Action Auto Parts
Oil Filter Inventory
Units
Purchased
Date
Beginning Inventory, Jan. 1
Purchase, March 14
Purchase, May 25
Purchase, August 19
Purchase, October 24
Total units available:
Cost per
Unit
Total
Cost
232.00
160
$1.45
346.50
210
1.65
288.80
190
1.52
531.00
300
1.77
400.00
250
1.60
1,110 Cost of goods available for sale: $1,798.30
2. When the merchandise manager of Action Auto Parts took physical inventory of
the oil filters on December 31, it was found that 550 remained in inventory.
a.
What is the dollar value of the oil filter inventory by using FIFO?
550 remaining using FIFO
b.
What is the dollar value of the oil filter inventory by using LIFO?
550 remaining using LIFO
c.
Units Cost>Unit Total
250
1.60
400.00
300
1.77
531.00
550
$931.00 FIFO
Units Cost>Unit Total
160
1.45
232.00
210
1.65
346.50
180
1.52
273.60
550
$852.10 LIFO
What is the dollar value of the filters by using the average cost method?
Average cost 5
$1,798.30
5 $1.62 Each
1,110
Total value 5 550 3 1.62 5 $891.00
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REVIEW EXERCISES | CHAPTER 16—SECTION I
3. The following data represents the inventory for home burglar alarm systems at Omega
Security Corporation:
Omega Security Corp.
Burglar Alarm Systems Inventory
Date
Units
Beginning Inventory, January 1
Purchase, March 10
Purchase, May 16
Purchase, October 9
Alarm systems available for sale
a.
235
152
135
78
600
Cost per Unit
$140.00
$143.50
$146.80
$150.00
Cost of goods available for sale
Total Cost
$32,900.00
21,812.00
19,818.00
11,700.00
$86,230.00
How many alarm systems did Omega Security have available for sale?
600
b.
What is the total cost of the alarm systems available for sale?
$86,230
c.
d.
e.
If physical inventory on December 31 showed 167 alarm systems on hand, what
is their value using FIFO?
Units
Cost/Unit
78
89
167
150.00
146.80
Total
11,700.00
13,065,20
$24,765.20
What is the value of the 167 alarm systems using LIFO?
Units
Cost/Unit
Total
167
140
$23,380
What is the value of the alarm systems using the average cost method?
Average cost 5
86,230
5 $143.72 each
600
Total value 5 167 3 $143.72 5 $24,001.24
REVIEW EXERCISES
|
CHAPTER 16—SECTION I
b.
a.
$12,609.75
What is the total cost of the tanks available for sale?
322
Amount
1,596.00
42 units @ $38.00
2,920.00
80 units @ $36.50
4,962.50
125 units @ $39.70
3,131.25
75 units @ $41.75
of tanks available for sale: $12,609.75
How many fish tanks did Something’s Fishy have available for sale?
January 1
Beginning Inventory
March 12
Purchase
July 19
Purchase
September 2
Purchase
Fish tanks available for sale: 322
Cost
Something’s Fishy
55-Gallon Fish Tanks Inventory
4. The following data represent the inventory figures for 55-gallon fish tanks at Something’s Fishy:
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e.
d.
c.
REVIEW EXERCISES
|
CHAPTER 16—SECTION I
75 @
41.75
5 3,131.25
39.70
5 516.10
13 @
88
Value of tanks $3,647.35
42 @
38.00
5 1,596.00
46 @
36.50
5 1,679.00
88
Value of tanks $3,275.00
Average cost 5
$12,609.75
5 $39.16 Each
322
Total value 5 88 3 39.16 5 $3,446.08
What is the value of the 88 tanks by using the average cost method?
88 tanks using LIFO
What is the value of the 88 tanks by using LIFO?
88 tanks using FIFO
If physical inventory on December 31 was 88 tanks on hand, what is the value of
those tanks by using FIFO?
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T16-5
REVIEW EXERCISES | CHAPTER 16—SECTION I
5. Determine the amount of the following inventory for Tru-Value Hardware by using
the lower-of-cost-or-market rule:
Tru-Value Hardware
Power Tool Inventory
Unit Price
Description
3
ᎏᎏ" Drill
8
1
ᎏᎏ" Drill
2
7" Circle Saw
3
ᎏᎏ" Router
8
5" Rotary Sander
9" Belt Sander
Quantity
Cost
15
19
12
8
15
9
$25.60
42.33
32.29
55.30
27.60
33.59
Market
Valuation
Basis
Amount
Market
$336.00
$22.40
Market
744.23
39.17
Cost
387.48
34.50
Market
433.76
54.22
Market
406.50
27.10
Cost
302.31
34.51
Total value of inventory: $2,610.28
6. Use the lower-of-cost-or-market rule to determine the value of the following inventory for the Sunset Emporium:
Sunset Emporium
Unit Price
Quantity
Cost
Market
Valuation
Basis
Dish Sets
220
$36
$33
Market
$ 7,260.00
Table Cloths
Barbeque Tools
180
428
13
35
14
33
Cost
Market
2,340.00
14,124.00
Outdoor Lamps
Ceramic Statues
278
318
56
22
Description
Amount
Market
13,900.00
50
Market
5,406.00
17
Total Value of Inventory: $43,030.00
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BUSINESS DECISION | CHAPTER 16—SECTION I
IN OR OUT?
7. You are the accounting manager for Marcel Industries. One of your junior accountants is working on the December 31, year-end inventory figures, and has asked for
help in determining which units represent actual inventory. From the following inventory scenarios, choose which should be included in the year-end inventory and
which should not. Hint: Refer to Exhibit 7-3, Freight Terminology, page 206.
a.
Marcel shipped 4,650 units FOB shipping point on December 31. They were picked
up by the freight company at 11:30 p.m.
b.
On December 27, Franklin Supply Company returned 1,200 units to Marcel that
were the wrong merchandise. The replacement order is scheduled to be shipped
on January 6.
c.
Marcel has moved 4,500 units from the warehouse to the packing department for
shipment on January 3, to Castlewood, Inc.
d.
Merchandise that Marcel shipped to Brantley Distributors FOB shipping point
was picked up by the freight company on December 26, but was not delivered at
its destination until January 5.
e.
On December 19, Marcel received 25 units from Dorsey Discount for warranty
repair. These are scheduled to be returned to Dorsey on January 5.
f.
Marcel shipped 3,400 units FOB destination on December 29, which arrived on
January 3.
Included in inventory: b, c, f
Not included in inventory: a, d, e
REVIEW EXERCISES
|
CHAPTER 16—SECTION II
Retail
Goods available for sale at retail
720,000.00
Net sales
2 395,000.00
Ending inventory at retail
$325,000.00
Ending inventory at cost 5 325,000.00 3 33.3%
5 $108,225.00
$450,000
270,000
240,000
Cost ratio 5
5 33.3%
720,000
$150,000
90,000
Cost
Retail
Beginning inventory, Sept. 1
150,000
450,000
Purchases (September)
¬ 90,000¬ 270,000
Goods available for sale
$240,000 $720,000
Beginning Inventory, Sept. 1
Purchases (September)
Net Sales (September) $395,000
Cost
Contemporary Furniture Designs, Inc.
September 1–September 30
1. Using the retail method, estimate the value of the ending inventory at cost on September 30 from the following information for Contemporary Furniture Designs, Inc.
Round the cost ratio to the nearest tenth percent.
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REVIEW EXERCISES
|
CHAPTER 16—SECTION II
Cost ratio 5
276,060
5 0.43 5 43%
642,000
$137,211
138,849
$276,060
$328,500
313,500
$642,000
Retail
Goods available for sale at retail
642,000
Net sales
2 205,400
Ending inventory at retail
$436,600
Ending inventory at cost 5 436,600 3 43% 5 $187,738
Beginning Inventory
Net Purchases (November)
Goods available for sale
Cost
Winston Industries
Financial Highlights
November 1–November 30
2. Winston Industries had net sales of $205,400 in the month of November. Use the retail method to estimate the value of the inventory as of November 30 from the following financial information:
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REVIEW EXERCISES
|
CHAPTER 16—SECTION II
146,000.00
1 208,000.00
$354,000.00
437,000.00(100% 2 55%)
437,000.00 3 .45
5 $196,650.00
Goods available for sale
354,000.00
Cost of goods sold
2 196,650.00
Estimated ending inventory $157,350.00
Estimated cost of goods sold
Beginning inventory
Net purchases
Goods available for sale
Estimated cost of goods sold
Goods available for sale
714,900
Cost of goods sold
2 53,634
Estimated ending inventory $661,266
622,500
1 92,400
714,900
127,700(100% 2 58%)
127,700 3 0.42 5 53,634
4. Granby Engineering Supplies maintains a gross margin of 58% on all of its merchandise. In June the company had a beginning inventory of $622,500, net purchases of
$92,400, and net sales of $127,700. Use the gross profit method to estimate the cost of
ending inventory as of June 30.
Beginning inventory
Net purchases
Goods available for sale
3. Precision Fitness Equipment, Inc., maintains a gross margin of 55% on all its weight
training products. In April, Precision had a beginning inventory of $146,000, net purchases of $208,000, and net sales of $437,000. Use the gross profit method to estimate
the cost of ending inventory.
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REVIEW EXERCISES
|
CHAPTER 16—SECTION II
Retail
336,000.00
140,000.00
5 41.7%
336,000.00
$120,000
216,000
Retail
Goods available for sale at retail
336,000.00
Net sales
2 188,000.00
Ending inventory at retail
$148,000.00
Ending inventory at cost 5 148,000.00 3 .417
5 $61,716.00
Cost ratio 5
$50,000
90,000
Cost
Retail
Beginning inventory, Jan. 1
50,000.00
120,000.00
¬ 90,000.00¬ 216,000.00
Purchases (January)
Goods available for sale
$140,000.00 $336,000.00
Cost
Beginning Inventory, Jan. 1
Purchases (January)
Net Sales (January) $188,000
Cost
Marathon Welding Supply, Inc.
January 1–January 31
5. The following data represent the inventory figures for Marathon Welding Supply, Inc.
Using the retail method, estimate the value of the ending inventory at cost on January 31. Round the cost ratio to the nearest tenth percent.
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REVIEW EXERCISES
|
CHAPTER 16—SECTION II
Beginning inventory
312,000.00
Net purchases
¬1 232,600.00
Total goods available
$544,600.00
Est. cost of goods sold
615,400.00(100% 2 60%)
615,400.00 3 .4
5 $246,160.00
Total goods available
544,600.00
Est. cost of goods sold ¬2 246,160.00
Est. ending inventory
$298,440.00
6. You are the warehouse manager for the Carpet Boutique, Inc. On a Sunday in May,
you receive a phone call from the owner. He states that the entire building and contents
were destroyed by fire. For the police report and the insurance claim, the owner has
asked you to estimate the value of the lost inventory. Your records, which luckily were
backed up on the hard drive of your home computer, indicate that at the time of the
fire the net sales to date were $615,400 and the purchases were $232,600. The beginning
inventory, on January 1, was $312,000. For the past 3 years, the company has operated
at a gross margin of 60%. Use the gross profit method to calculate your answer.
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T16-12
BUSINESS DECISION | CHAPTER 16—SECTION I I
OVER OR UNDER?
7. You own Champion Marine, a retailer of boats, motors, and marine accessories. The
store manager has just informed you that the amount of the physical inventory was
incorrectly reported as $540,000 instead of the correct amount of $450,000. Unfortunately, yesterday you sent the quarterly financial statements to the stockholders. Now
you must send revised statements and a letter of explanation.
a.
What effect did the error have on the items of the balance sheet for Champion?
Express your answer as overstated or understated for the items affected by the error.
Merchandise inventory was overstated by $90,000 ($540,000 2 $450,000). Therefore, Current assets, Total assets, and Total stockholders equity were also
overstated by $90,000.
b.
What effect will the error have on the items of the income statement for Champion?
Cost of goods sold was understated by $90,000. Therefore, Gross profit and Net
income were overstated by $90,000.
c.
Did this error make the Champion quarterly results look better or worse than
they actually are?
The inventory overstatement made the company’s quarterly results look better
than they actually were.
REVIEW EXERCISES
|
CHAPTER 16—SECTION III
Cost of
Goods Sold
$335,000
1,200,000
Net
Sales
1. $ 500,000
2.
3.
4. 4,570,000
$ 50,000
48,000
443,000
854,000
Beginning
Inventory
$ 70,000
56,000
530,000
650,300
Ending
Inventory
Inventory
Turnover
8.3
6.4
2.5
6.1
Average
Inventory
$60,000.00
$52,000.00
$486,500.00
$752,150.00
10.0
6.0
3.5
8.2
Published
Rate
$50,000.00
Above
$342,857.14
$557,317.07
Target
Average Inventory
Assuming that all net sales figures are at retail and all cost of goods sold figures are
at cost, calculate the average inventory and inventory turnover for the following. If the
actual turnover is less than the published rate, calculate the target average inventory
necessary to come up to industry standards:
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REVIEW EXERCISES
|
CHAPTER 16—SECTION III
24,000 1 32,900
5 $28,450.00
2
What is the inventory turnover rounded to the nearest tenth?
b.
b.
245,300
5 4.2 Times
58,400
62,600 1 54,200
Average inventory 5
5 $58,400
2
What is the inventory turnover, rounded to the nearest tenth?
Inventory turnover 5
What is the average inventory at retail?
a.
6. The Luna Nuevo Bath Boutique had net sales of $245,300 for the year. The beginning
inventory at retail was $62,600 and the ending inventory at retail was $54,200.
145,900
5 5.1 Times
Inventory turnover 5
28,450
Average inventory 5
What is the average inventory at retail?
a.
5. Quality Brakes and Parts, Inc., had net sales of $145,900 for the year. The beginning
inventory at retail was $24,000, and the ending inventory at retail was $32,900.
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REVIEW EXERCISES | CHAPTER 16—SECTION I I I
7. The Gourmet’s Delight, a cooking equipment wholesaler, had cost of goods sold of
$458,900 for the year. The beginning inventory at cost was $83,600, and the ending inventory at cost was $71,700.
a.
What is the average inventory at cost?
b.
83,600 1 71,700
5 $77,650.00
2
What is the inventory turnover, rounded to the nearest tenth?
Average inventory 5
Inventory turnover 5
458,900
5 5.9 Times
77,650
8. Duster Industries had cost of goods sold of $359,700 for the year. The beginning inventory at cost was $73,180 and the ending inventory at cost was $79,500.
a.
What is the average inventory at cost?
b.
73,180 1 79,500
5 $76,340
2
What is the inventory turnover rounded to the nearest tenth?
Average inventory 5
Inventory turnover 5
359,700
5 times 4.7 times
76,340
9. Swanson Supply is a plumbing parts wholesaler. Last year, their average inventory at
cost was $154,800, and their cost of goods sold was $738,700. The inventory turnover
rate published for a business of this size is 5.5 times.
a.
Calculate the actual inventory turnover rate at cost for Swanson (round to the
nearest tenth).
Inventory turnover 5
b.
738,700
5 4.8 Times
154,800
If the turnover rate is below the industry average of 5.5 times, calculate the target average inventory needed to match the industry standard.
Target inventory 5
738,700
5 $134,309.09
5.5
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REVIEW EXERCISES | CHAPTER 16—SECTION I I I
10. Modern Molding Corporation had cost of goods sold for the year of $1,250,000. The
beginning inventory at cost was $135,000, and the ending inventory at cost amounted
to $190,900. The inventory turnover rate published as the industry standard for a business of this size is 9.5 times.
a.
b.
Calculate the average inventory and actual inventory turnover rate for the company.
Average inventory 5
135,000 1 190,900
5 $162,950.00
2
Inventory turnover 5
1,250,000
5 7.7 Times
162,950
If the turnover rate is less than 9.5 times, calculate the target average inventory
needed to theoretically come up to industry standards.
Target inventory 5
1,250,000
5 $131,578.95
9.5
11. Trophy Masters had net sales for the year of $145,000. The beginning inventory at retail was $36,000, and the ending inventory at retail amounted to $40,300. The inventory turnover rate published as the industry standard for a business of this size is 4.9
times.
a.
b.
Calculate the average inventory and actual inventory turnover rate for the company.
Average inventory 5
36,000 1 40,300
5 $38,150.00
2
Inventory turnover 5
145,000
5 3.8 Times
38,150
If the turnover rate is less than 4.9 times, calculate the target average inventory
needed to theoretically come up to industry standards.
Target inventory 5
145,000
5 $29,591.84
4.9
T16-17
BUSINESS DECISION | CHAPTER 16—SECTION I I I
KEEP YOUR EYE ON THE FEET
12. Another way to look at the concept of inventory turnover is by measuring sales per
square foot. Taking the average inventory at retail and dividing it by the number of
square feet devoted to a particular product will give you average sales per square foot.
When you multiply this figure by the inventory turnover rate you get the annual sales
per square foot.
It is important to know the amount of sales per square foot your merchandise is
producing, both on the average and annually. These figures should be tracked monthly,
and compared with industry standards for businesses of similar size and type.