Corporate Financial Accounting
14th Edition
ISBN: 9781305653535
Author: Carl Warren, James M. Reeve, Jonathan Duchac
Publisher: Cengage Learning
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Textbook Question
Chapter 6, Problem 6.1ADM
Continuing Company Analysis—Amazon: Inventory turnover and number of days’ sales in inventory
Amazon.com, Inc. is one of the largest Internet retailers in the world. Target Corporation is one of the largest value-priced general merchandisers operating in the United 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):
| Amazon | Target | |
| Cost of goods sold | $62,752 | $51,160 |
| Inventories: | ||
| Beginning of year | 7,411 | 7,903 |
| End of year | 8,299 | 8,766 |
A. Compute the inventory turnover for 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?
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Evaluating Turnover and Nontraditional Efficiency Ratios Across IndustriesThe following information is taken from publicly traded retailers. The data come from the balance sheet, income statement, and Item 2 on the companies’ Form 10‑K filings. Use the information to answer the requirements.
Average
Retail SQ
# of
$ millions
Revenue
COGS
Inventory
Footage (000s)
Stores
Autozone
$11,221
$4,902
$3,913
41,066
6,202
Costco
141,576
121,715
10,437
110,700
762
Home Depot
108,203
71,043
13,337
237,700
2,287
Lowe’s
71,309
48,396
11,977
209,000
2,015
O’Reilly
9,536
4,237
3,102
38,455
5,219
Walmart
511,729
374,623
44,026
1,129,000
11,361
Requireda. Compute the days inventory outstanding (DIO) for each company.Note: Do not round until your final answer; round your final answer to the nearest whole day.
DIO
AUTOZONE
Answer
days
COSTCO
Answer
days
HOME DEPOT
Answer
days
LOWE'S
Answer
days
O'REILLY
Answer
days
WALMART
Answer
days
b. Compute…
Inventory Management Metrics
Large retailers like The Home Depot and Wal-Mart typically use gross margin ratio (gross margin ÷ sales), inventory turnover (sometimes referred to as inventory turns), and gross margin return on investment (GMROI) to evaluate how well inventory has been managed. The goal is to maximize profits while minimizing the investment in inventory. Below are data for four scenarios, a base scenario (# 1) followed by three modifications (#s 2, 3, & 4) to the base scenario.
Scenario 1
Scenario 2
Scenario 3
Scenario 4
Sales
$10,000
$20,000
$12,000
$10,000
Cost of goods sold
6,000
12,000
6,000
6,000
Gross profit
$4,000
$8,000
$6,000
$4,000
Average inventory
$6,000
$6,000
$6,000
$5,000
For each scenario calculate the gross margin percent, the inventory turnover, and GMROI.
Round your answers to one decimal place. (Example for % answers -- 99.9%)
Scenario 1
Scenario 2
Scenario 3
Scenario 4
Gross margin %
Inventory Turnover…
Customer profitability, customer-cost hierarchy. Enviro-Tech has only two retail and two wholesale customers. Information
relating to each customer for 2017 follows (in thousands):
Wholesale Customers
Retail Customers
North America
South America
Wholesaler
Wholesaler
Green Energy
Global Power
Revenues at list prices
Discounts from list prices
Cost of goods sold
Delivery costs
Order processing costs
$375,000
25,800
$590,000
$175,000
$130,000
47,200
8,400
590
285,000
510,000
144,000
95,000
2,230
2,180
4,550
6,710
2,145
3,820
5,980
1,130
Cost of sales visit
6,300
2,620
2,620
1,575
Enviro-Tech's annual distribution-channel costs are $33 million for wholesale customers and $12 million for retail
customers. The company's annual corporate-sustaining costs, such as salary for top management and general-
administration costs are $48 million. There is no cause-and-effect or benefits-received relationship between any cost-
allocation base and corporate-sustaining costs. That is, Enviro-Tech could…
Chapter 6 Solutions
Corporate Financial Accounting
Ch. 6 - Prob. 1DQCh. 6 - Why is it important to periodically take a...Ch. 6 - Do the terms FIFO, LIFO, and weighted average...Ch. 6 - If inventory is being valued at cost and the price...Ch. 6 - Which of the three methods of inventory...Ch. 6 - If inventory is being valued at cost and the price...Ch. 6 - Using the following data, how should the inventory...Ch. 6 - The inventory at the end of the year was...Ch. 6 - Hutch Co. sold merchandise to Bibbins Company on...Ch. 6 - A manufacturer shipped merchandise to a retailer...
Ch. 6 - Cost flow methods The following three identical...Ch. 6 - Perpetual inventory using FIFO Beginning...Ch. 6 - Perpetual inventory using LIFO Beginning...Ch. 6 - Periodic inventory using FIFO, UFO, and weighted...Ch. 6 - Lower-of-cost-or-market method On the basis of the...Ch. 6 - Effect of inventory errors During the taking of...Ch. 6 - Control of inventories Triple Creek Hardware Store...Ch. 6 - Control of inventories Hardcase Luggage Shop is a...Ch. 6 - Perpetual inventory using FIFO Beginning...Ch. 6 - Perpetual inventory using LIFO Assume that the...Ch. 6 - Perpetual inventory using LIFO Beginning...Ch. 6 - Perpetual inventory using FIFO Assume that the...Ch. 6 - FIFO and UFO costs under perpetual inventory...Ch. 6 - Weighted average cost flow method under perpetual...Ch. 6 - Weighted average cost flow method under perpetual...Ch. 6 - Perpetual inventory using FIFO Assume that the...Ch. 6 - Perpetual inventory using LIFO Assume that the...Ch. 6 - Periodic inventory by three methods The units of...Ch. 6 - Periodic inventory by three methods; cost of goods...Ch. 6 - Comparing inventory methods Assume that a firm...Ch. 6 - Lower-of-cost-or-market inventory On the basis of...Ch. 6 - Inventory on the balance sheet Based on the data...Ch. 6 - Effect of errors n physical inventory Madison...Ch. 6 - Effect of errors in physical inventory Fonda...Ch. 6 - Prob. 6.19EXCh. 6 - Retail method A business using the retail method...Ch. 6 - Retail method A business using the retail method...Ch. 6 - Prob. 6.22EXCh. 6 - Retail method On the basis of the following data,...Ch. 6 - Prob. 6.24EXCh. 6 - Gross profit method Based on the following data,...Ch. 6 - Gross profit method Based on the following data,...Ch. 6 - FIFO perpetual inventory The beginning inventory...Ch. 6 - LIFO perpetual inventory The beginning inventory...Ch. 6 - Weighted average cost method with perpetual...Ch. 6 - Periodic inventory by three methods The beginning...Ch. 6 - Periodic inventory by three methods Dymac...Ch. 6 - Lower-of-cost-or-market inventory Data on the...Ch. 6 - Retail method; gross profit method Selected data...Ch. 6 - FIFO perpetual inventory The beginning inventory...Ch. 6 - LIFO perpetual inventory The beginning inventory...Ch. 6 - Weighted average cost method with perpetual...Ch. 6 - Periodic inventory by three methods The beginning...Ch. 6 - Periodic inventory by three methods Pappas...Ch. 6 - Lower-of-cost-or-market inventory Data on the...Ch. 6 - Retail method; gross profit method Selected data...Ch. 6 - Continuing Company AnalysisAmazon: Inventory...Ch. 6 - Costco, Walmart, Nordstrom: Inventory turnover and...Ch. 6 - Monster Beverage and Brown-Forman: Inventory...Ch. 6 - Prob. 6.4ADMCh. 6 - Ethics in Action Sizemo Elektroniks sells...Ch. 6 - Communication Golden Eagle Company began...
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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
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