Financial Accounting: An Integrated Statements Approach, 2nd Edition

Chapter 6 Inventories 291

On the basis of the following data, determine the value of the inventory at the lower of cost or

market. Assemble the data in the form illustrated in Exhibit 9.

Inventory Unit Unit

Commodity Quantity Cost Price Market Price

M76 8 $150 $160

T53 20 75 70

A19 10 275 260

J81 15 50 40

K10 25 101 105

Based on the data in Exercise 6-13 and assuming that cost was determined by the fifo method,

show how the merchandise inventory would appear on the balance sheet.

Assume that a company initiated a quick response program.

a. What impact would the program have on the inventory balance and cash flow?

b. What impact would the program have on cost of goods sold, assuming that the firm used

lifo?

The following data were taken from recent annual reports of Dell Inc., a vendor of personal

computers and related technology products, and Boeing Co., a manufacturer of jet aircraft and

aerospace products:

Dell Inc. Boeing Co.

(in millions) (in millions)

Cost of goods sold $40,190 $44,675

Inventory, end of year 459 4,247

Inventory, beginning of the year 327 5,338

a. Determine the inventory turnover for Dell and Boeing. Round to one decimal place.

b. Would you expect Boeing’s inventory turnover to be higher or lower than Dell’s? Why?

The inventories (in millions) of Anheuser-Busch Companies, Inc., were recently reported on its

December 31, 2004 and 2003, balance sheets as follows:

Dec. 31, 2004 Dec. 31, 2003

Raw materials $405.0 $320.3

Work-in-process 80.0 81.9

Finished goods 205.3 185.3

Total $690.3 $587.5

The cost of goods sold reported on the income statement was $8,983 million.

a. What do the three inventory classes on Anheuser-Busch’s balance sheet represent?

b. Calculate the number of days’ sales in inventory for raw materials and finished goods and

for the total inventory. Round to one decimal place.

c. Interpret your calculations in (b).

Exercise 6-13

Lower-of-cost-or-market
inventory

Goal 7

LCM: $8,325

Exercise 6-14

Merchandise inventory on the
balance sheet

Goal 7

Exercise 6-15

Quick response

Goal 8

Exercise 6-16

Inventory turnover

Goal 9

Exercise 6-17

Manufacturing inventories
and analysis

Goals1, 9

Number of days’ sales in
inventory of raw materials,
14.7