Principles of Accounting
12th Edition
ISBN: 9781133626985
Author: Belverd E. Needles, Marian Powers, Susan V. Crosson
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
Chapter 7, Problem 6C
JCPenney, a large retail company with many stores, has an inventory turnover of about 3.8 times. Dell Computer Corporation, an Internet mail-order company, has an inventory turnover of about 36.0. Dell achieves its high turnover through supply-chain management in a just-in-time operating environment. Why is inventory turnover important to companies like JCPenney and Dell? Why are comparisons among companies important? Are JCPenney and Dell a good match for comparison? Describe supply-chain management and a just-in-time operating environment. Why are they important to achieving a favorable inventory turnover?
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
The level of inventory a company maintains has important economic consequences, and it involves conflicting goals. The ability to control inventory levels is a critical skill in managing a business.
Three retailing giants, Best Buy Co., Inc. (NYSE: BBY), Amazon.com, Inc., (NASDAQ: AMZN), and Target Corporation (NYSE: TGT) each use a different inventory costing method. Best Buy uses weighted-average cost, Amazon uses FIFO, and Target uses LIFO.
Below is a hypothetical example that highlights the potential differences in income statements and balance sheets that could arise simply because of the use of a different inventory costing method.
Assume that all three retailers sell a popular shirt that retails for $32. To compare the impact of inventory costing method, we will also assume that all three retailers have the following inventory and sales data for the same period. To keep the calculations simple, a “unit” represents one million shirts.
Beginning inventory: 3 units @ $10.00…
Amazon.com, Inc. (AMZN) is one of the largest Internet retailers in the world. Target Corporation (TGT) is one of the largest value-priced general merchandisers operating in the L'nited States. Target sells through nearly 1,800 brick-and-mortar stores and through the Internet. Amazon and Target compete for customers across a wide variety of products, including media, general merchandise, apparel, and consumer electronics. Cost of goods sold and inventory information from a recent annual report are provided for both companies as follows (in millions):
a. Compute the inventory turnover far both companies. Round all calculations to one decimal place.b. Compute the number of days' sales in inventory for both companies. Use 365 days and round all calculations to one decimal place.c. - Which company has the better inventory efficiency?d. What might explain the difference in inventory efficiency between the two companies?
Two days ago, Josh analyzed two gigantic home improvement retailers – The Home Depot, Inc. (HD) and Lowe’s Companies, Inc. (LOW) – and found that HD and LOW have the same quick ratio, but HD has a greater current ratio than LOW. Based on the information, Josh concluded that
A.
HD has a higher receivables turnover ratio.
B.
LOW has lower payables.
C.
HD has greater inventory.
D.
None of the above.
Chapter 7 Solutions
Principles of Accounting
Ch. 7 - Prob. 1DQCh. 7 - Which of the following methods do not require a...Ch. 7 - Prob. 3DQCh. 7 - Prob. 4DQCh. 7 - Prob. 5DQCh. 7 - Prob. 6DQCh. 7 - Prob. 7DQCh. 7 - Prob. 1SECh. 7 - Assume the following data with regard to inventory...Ch. 7 - Prob. 3SE
Ch. 7 - Prob. 4SECh. 7 - Prob. 5SECh. 7 - Prob. 6SECh. 7 - Prob. 7SECh. 7 - Prob. 8SECh. 7 - Prob. 9SECh. 7 - Prob. 10SECh. 7 - Prob. 11SECh. 7 - Prob. 12SECh. 7 - Prob. 1EACh. 7 - Prob. 2EACh. 7 - Prob. 3EACh. 7 - Prob. 4EACh. 7 - Prob. 5EACh. 7 - Prob. 6EACh. 7 - During July 2014, Micanopy, Inc., sold 500 units...Ch. 7 - Prob. 8EACh. 7 - Prob. 9EACh. 7 - Prob. 10EACh. 7 - Prob. 11EACh. 7 - Prob. 12EACh. 7 - Midori Company merchandises a single product...Ch. 7 - The inventory of Wood4Fun and data on purchases...Ch. 7 - Prob. 3PCh. 7 - Prob. 4PCh. 7 - Prob. 5PCh. 7 - Prob. 6APCh. 7 - DiPaolos inventory, purchases, and sales for March...Ch. 7 - Prob. 8APCh. 7 - Prob. 9APCh. 7 - Zubac Company is a large retail furniture company...Ch. 7 - Prob. 1CCh. 7 - Prob. 2CCh. 7 - ExxonMobil Corporation had net income of 41.0...Ch. 7 - Prob. 4CCh. 7 - JCPenney, a large retail company with many stores,...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Why would the inventory turnover ratio be more important for someone analyzing a grocerystore chain than an insurance company?arrow_forwardClinton 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…arrow_forwardRequired information [The following information applies to the questions displayed below.] BookWeb, Incorporated, sells books and software over the Internet. A recent article in a trade journal has caught the attention of management because the company has experienced soaring inventory handling costs. The article notes that similar firms have purchasing, warehousing, and distribution costs that average 13 percent of sales. Thirteen percent is attractive to BookWeb management when compared to its results for the past year, shown in the following table: Activity (cost) Cost Driver Cost Driver % of Cost Driver % of Cost Driver Quantity Incoming receipts ($300,000) Warehousing ($360,000) Shipments ($225,000) Number of purchase orders Number of inventory moves Number of shipments 2,000 9,000 for Books 70% 80% for Software 30% 20% 15,000 25% 75% Book sales revenue totaled $3,900,000 and software sales revenue totaled $2,600,000. A review of the company's activities found various…arrow_forward
- The new owners of Sheraton Natural Foods Inc. have hired you to help them diagnose and cure problems that the company has had in maintaining adequate liquidity. As a first step, you perform a liquidity analysis. You then do an analysis of the company’s short-term activity ratios. Your calculations and appropriate industry norms are listed. Ratio Sheraton Industry Norm Current ratio 4.5 4.0 Quick ratio 2.0 3.1 Inventory turnover 6.0 10.4 Average collection period 73 days 52 days Average payment period 31 days 40 days Requirements: What recommendations relative to the amount and the handling of inventory could you make…arrow_forwardRetailers need merchandise to make sales. In fact, a retailer’s inventory is its biggest asset. Not stocking enough merchandise can result in lost sales, but carrying too much inventory increases costs and lowers margins. Both circumstances reduce profits. One measure of a reseller’s inventory management effectiveness is its stockturn rate (also called inventory turnover rate for manufacturers). The key to success in retailing is realizing a large volume of sales on as little inventory as possible while maintaining enough stock to meet customer demands. Determine the stockturn rate of a retailer carrying an average inventory at cost of $850,000, with a cost of goods sold of $1,800,000.arrow_forwardRetailers need merchandise to make sales. In fact, a retailer’s inventory is its biggest asset. Not stocking enough merchandise can result in lost sales, but carrying too much inventory increases costs and lowers margins. Both circumstances reduce profits. One measure of a reseller’s inventory management effectiveness is its stockturn rate (also called inventory turnover rate for manufacturers). The key to success in retailing is realizing a large volume of sales on as little inventory as possible while maintaining enough stock to meet customer demands. Refer to Appendix 2: Marketing by the Numbers, and determine the stockturn rate of a retailer carrying an average inventory at cost of $350,000, with a cost of goods sold of $800,000. If this company’s stockturn rate was 3.5 last year, is the stockturn rate calculated above better or worse? Explain.arrow_forward
- WalMart and other retailers have computerized cash registers to ring up sales. How does this feature help these firms manage inventory? Purchase prices change over time. When ordering inventory to replace what has been sold, the purchasing agent might find a price increase. Discuss and explain one of the following: First in First Out Last in First Out Weighted Average Cost Specific Identification Lower of Cost or Marketarrow_forwardYou have just been appointed as financial manager of Slow-Moving-Stock Limited. One of your main focus areas is to improve the inventory management system that the company currently has in place. You have extracted the following records from the Inventory Management Software. ITEM X4355 January February March April May June July August September October November December Normal days for delivery Maximum days for delivery Cost of placing an order Carrying cost of a unit per year Total Sales (u) 1500 1300 1200 1100 1100 1100 1500 1600 1700 1800 2500 1900 18300 a) Determine and comment on the inventory days ratio. ( b) Determine the appropriate reorder level for Item X4355. c) Determine the Economic order quantity for Item X4355. ( 5 8 R850 R250 Trading days 20 18 20 19 20 21 22 20 20 21 22 17 240 You also found that total purchases for all items for the year was R55 000 000 with the end of year inventory value being R26 000 000.arrow_forwardGoogle Inc. is a technology company specializing in Internet-related products and services, including its famous web search engine. Whirlpool Corp. manufactures home appliances including laundry appliances, refrigerators, and dishwashers. Google has a market - to - book ratio of 3.8. Based on your knowledge of the industries in which these two companies compete, and the determinants of the M/B ratio, would you estimate that Whirlpool's market-to - book ratio is O A. less than Google's M/B ratio of 3.8 O B. approximately equal to Google's M/B ratio of 3.8 O C. greater than Google's M/B ratio of 3.8arrow_forward
- Samsung Electronics reports the following regarding its accounting for inventories. Inventories are stated at the lower of cost or net realizable value. Cost is determined using the average cost method, except for materials-in-transit. Inventories are reduced for the estimated losses arising from excess, obsolescence, and decline in value. This reduction is determined by estimating market value based on future customer demand. The losses on inventory obsolescence are recorded as a part of cost of sales. 1. What cost flow assumption(s) does Samsung apply in assigning costs to its inventories? 2. If at the current year-end there was an increase in the value of its inventories such that there was a reversal of W550 (W is Korean won) million for the write-down recorded in the prior year, how would Samsung account for this under IFRS? Would Samsung’s accounting be different for this reversal if it reported under U.S. GAAP? Explain.arrow_forwardWhich company would likely have the highest inventory turnover ratio? grocery store electronics store furniture store O clothing retailerarrow_forwardThe following ratios have been provided for a company. Which of the statements below is a valid interpretation based on these ratios? Gross profit margin Operating profit margin Current ratio 20X3 38.8% 22.2% 20X4 40.2% 29.7% 4:1 3.2:1 Inventory days 27 32 Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. a The company's customers paid more quickly in 20X4 than in 20X3. b The company was more profitable in 20X4 than in 20X3. The company held inventory for longer in 20X3 than in 20X4. The company has poor liquidity.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Financial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,
Financial AccountingAccountingISBN:9781305088436Author:Carl Warren, Jim Reeve, Jonathan DuchacPublisher:Cengage Learning
Fundamentals of Financial Management, Concise Edi...FinanceISBN:9781285065137Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage Learning
Financial And Managerial Accounting
Accounting
ISBN:9781337902663
Author:WARREN, Carl S.
Publisher:Cengage Learning,
Financial Accounting
Accounting
ISBN:9781305088436
Author:Carl Warren, Jim Reeve, Jonathan Duchac
Publisher:Cengage Learning
Fundamentals of Financial Management, Concise Edi...
Finance
ISBN:9781285065137
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
How To Analyze an Income Statement; Author: Daniel Pronk;https://www.youtube.com/watch?v=uVHGgSXtQmE;License: Standard Youtube License