Clinton Company makes specialty cases for smart phones and other handheld devices. The company has experienced strong growth, and you are especially interested in how well Clinton is managing its inventory balances. You have collected the following information for the current year. Inventory at the beginning of year $ 1,555 million Inventory at the end of year, before any adjustments 1,267 million Total cost of goods sold, before any adjustments 17,844 million The company values inventory using the LIFO cost flow assumption. Instructions Prepare a schedule (a computer worksheet would serve well) showing the impact of the following items on Clinton's inventory turnover. a. Shipping contracts changed 2 months ago from f.o.b. shipping point to f.o.b. destination. At the end of the year, $5 million of products are en route to China (and will not arrive until after financial statements are released). Current inventory balances do not reflect this change in policy. b. During the year, Clinton recorded sales and costs of goods sold on $2 million of units shipped to various wholesalers on consignment. At year-end, these units were not included in the ending inventory balance; none of these units have been sold by wholesalers. c. To be more consistent with industry inventory valuation practices, Clinton changed from perpetual LIFO to FIFO for its inventory of iPad cases. This inventory is currently carried at $724 million. Data for this item of inventory for the year are as follows. Month Units Purchased Inventory Sold Price per Unit Units Balance January 1 100 $3.10 100 April 15 150 3.20 250 October 25 130 120 November 10 250 3.50 370 December 20 150 220 d. Explain to Clinton management the advantages of using the LIFO cost flow assumption. Are there any drawbacks? Explain.
Clinton Company makes specialty cases for smart phones and other handheld devices. The company has experienced strong growth, and you are especially interested in how well Clinton is managing its inventory balances. You have collected the following information for the current year.
| Inventory at the beginning of year | $ 1,555 million |
| Inventory at the end of year, before any adjustments | 1,267 million |
| Total cost of goods sold, before any adjustments | 17,844 million |
The company values inventory using the LIFO cost flow assumption.
Instructions
Prepare a schedule (a computer worksheet would serve well) showing the impact of the following items on Clinton's inventory turnover.
a. Shipping contracts changed 2 months ago from f.o.b. shipping point to f.o.b. destination. At the end of the year, $5 million of products are en route to China (and will not arrive until after financial statements are released). Current inventory balances do not reflect this change in policy.
b. During the year, Clinton recorded sales and costs of goods sold on $2 million of units shipped to various wholesalers on consignment. At year-end, these units were not included in the ending inventory balance; none of these units have been sold by wholesalers.
c. To be more consistent with industry
| Month | Units Purchased | Inventory Sold | Price per Unit | Units Balance |
| January 1 | 100 | $3.10 | 100 | |
| April 15 | 150 | 3.20 | 250 | |
| October 25 | 130 | 120 | ||
| November 10 | 250 | 3.50 | 370 | |
| December 20 | 150 | 220 |
d. Explain to Clinton management the advantages of using the LIFO cost flow assumption. Are there any drawbacks? Explain.
Trending now
This is a popular solution!
Step by step
Solved in 5 steps
