Financial Accounting: An Integrated Statements Approach, 2nd Edition

Wal-Mart’s annual reports showed the following inventory and cost of goods sold data (in mil-

lions) for the years ended January 31, 2005 and 2004:

2005 2004

Cost of goods sold $219,793 $198,747

Inventory 29,447 26,612

The following graphs were taken from EdgarScan™Benchmarking Assistant for the past 10

years:

298 Chapter 6 Inventories

Case 6-4

Inventory turnover and number

of days’ sales in inventory—

Wal-Mart

Case 6-5

Inventory ratios for Dell

and HP

a. Using the preceding cost of goods sold and inventory data, compute the inventory turnover

for 2005. Does it agree with the amount shown in the preceding graph? (Hint:The graph is

based upon using ending rather than average inventory.)

b. Using the preceding cost of goods sold and inventory data, compute the days’ sales in

inventory for 2005. Does it agree with the amount shown in the preceding graph?

c. Comment on the preceding graphs.

Dell Inc.andHewlett-Packard Company (HP)are both manufacturers of computer equipment

and peripherals. However, the two companies follow two different approaches. Dell follows a

build-to-order approach, where the consumer orders the computer from a Web page. The order

is then manufactured and shipped to the customer within days of the order. In contrast, HP fol-

lows a build-to-stock approach, where the computer is first built for inventory, then sold from