1. 7
Inventories

2. After studying this chapter, you should be able to:
Describe the importance of control over inventory.
Describe three inventory cost flow assumptions and how they impact the income statement and balance sheet.

3. After studying this chapter, you should be able to:
After studying this chapter, you should be able to:
Determine the cost of inventory under the perpetual system, using the FIFO, LIFO, and average cost methods.
Determine the cost of inventory under the periodic system, using the FIFO, LIFO, and average cost methods.
Compare and contrast the use of the three inventory costing methods.

4. After studying this chapter, you should be able to:
After studying this chapter, you should be able to:
Describe and illustrate the reporting of merchandise inventory in the financial statement.
Estimate the cost of inventory using the retail method and the gross profit method.

5. Describe the importance of control over inventory.
7-1
Objective 1
Describe the importance of control over inventory.

6. Two primary objectives of control over inventory are:
7-1
Two primary objectives of control over inventory are:
Safeguarding the inventory, and
Properly reporting it in the financial statements.

7. 7-1
Controls over inventory include developing and using security measures to prevent inventory damage or customer or employee theft.

8. 7-1
To ensure the accuracy of the amount of inventory reported in the financial statements, a merchandising business should take a physical inventory.

9. 7-2
Objective 2
Describe three inventory cost flow assumptions and how they impact the income statement and balance sheet.

10. Inventory Costing Methods
7-2 10

11. 7-2
(Continued) 11

12. 7-2
(Continued) 12

13. 7-2
(Concluded) 13

14. Number of firms (> $1B Sales)
Inventory Costing Methods
7-2
400
300
200
100
371
299
Number of firms (> $1B Sales)
130
FIFO
LIFO
Average cost 14

15. 7-2 -
Example Exercise 7-1
The three identical units of Item QBM are purchased during February, as shown below.
Item QBM Units Cost
Feb. 8 Purchase 1 $ 45
15 Purchase 1 48
26 Purchase
Total 3 $144
Average cost per unit $48 ($144 ÷ 3 units)
Assume that one unit is sold on February 27 for $70.
Determine the gross profit for February and ending inventory on February 28 using (a) first-in, first-out (FIFO); (b) last-in, first-out (LIFO); and (c) average cost methods. 15

16. Gross Profit Ending Inventory
7-2
Follow My Example 7-1
Gross Profit Ending Inventory
First-in, first-out (FIFO): $25 ($70 – $45) $99 ($48 – $51)
Last-in, first-out (LIFO): $19 ($70 – $51) $93 ($45 + $48)
Average cost: $22 ($70 – $48) $96 ($48 x 2)
$144/3 units 16
For Practice: PE 7-1A, PE 7-1B

17. 7-3
Objective 3
Determine the cost of inventory under the perpetual inventory system, using FIFO, LIFO, and average cost methods.

18. FIFO Perpetual
7-3
On January 1, the firm had 100 units of Item 127B that cost $20 per unit.
Item 127B
Units Cost Jan. 1 Inventory 100 $20 18

19. On January 4, the firm sold 70 units of 127B at $30 each.
FIFO Perpetual
7-3
On January 4, the firm sold 70 units of 127B at $30 each.
Item 127B
Units Cost Jan. 1 Inventory 100 $20
4 Sale 70 19

20. On January 4, the firm sold 70 units of 127B at $30 each.
FIFO Perpetual
7-3
On January 4, the firm sold 70 units of 127B at $30 each.
4 Accounts Receivable
Sales
On January 22, the firm sold twenty units at $30.
4 Cost of Merchandise Sold
Merchandise Inventory 20

21. FIFO Perpetual
7-3
Item 127B
Purchases Cost of Mdse. Sold Inventory Balance
Unit Total Unit Total Unit Total Date Qty. Cost Cost Qty. Cost Cost Qty. Cost Cost
Jan ,000 , 21

22. On January 10, the firm purchased 80 units at $21 each.
FIFO Perpetual
7-3
On January 10, the firm purchased 80 units at $21 each.
Item 127B
Units Cost Jan. 1 Inventory 100 $20
4 Sale 70
10 Purchase 80 21 22

23. On January 10, the firm purchased 80 units at $21 each.
FIFO Perpetual
7-3
On January 10, the firm purchased 80 units at $21 each.
10 Merchandise Inventory
Accounts Payable 23

24. FIFO Perpetual
7-3
Item 127B
Purchases Cost of Mdse. Sold Inventory Balance
Unit Total Unit Total Unit Total Date Qty. Cost Cost Qty. Cost Cost Qty. Cost Cost
Jan , ,
, ,680 24

25. On January 22, the firm sold 40 units for $30 each.
FIFO Perpetual
7-3
On January 22, the firm sold 40 units for $30 each.
Item 127B
Units Cost Jan. 1 Inventory 100 $20
4 Sale 70
10 Purchase 80 21
22 Sale 40 25

26. On January 22, the firm sold 40 units for $30 each.
FIFO Perpetual
7-3
On January 22, the firm sold 40 units for $30 each.
22 Accounts Receivable
Sales
On January 22, the firm sold twenty units at $30.
22 Cost of Merchandise Sold
Merchandise Inventory 26

27. FIFO Perpetual
7-3
Item 127B
Purchases Cost of Mdse. Sold Inventory Balance
Unit Total Unit Total Unit Total Date Qty. Cost Cost Qty. Cost Cost Qty. Cost Cost
Jan , ,
, ,680
,470
Of the forty sold, thirty are considered to be from those acquired at $20 each. The other ten are considered to be from the January 10 purchase. 27

28. On January 28, the firm sold 20 units at $30 each.
FIFO Perpetual
7-3
On January 28, the firm sold 20 units at $30 each.
Item 127B
Units Cost Jan. 1 Inventory 100 $20
4 Sale 70
10 Purchase 80 21
22 Sale 40
28 Sale 20 28

29. On January 28, the firm sold 20 units at $30 each.
FIFO Perpetual
7-3
On January 28, the firm sold 20 units at $30 each.
28 Accounts Receivable
Sales
28 Cost of Merchandise Sold
Merchandise Inventory 29

30. FIFO Perpetual
7-3
Item 127B
Purchases Cost of Mdse. Sold Inventory Balance
Unit Total Unit Total Unit Total Date Qty. Cost Cost Qty. Cost Cost Qty. Cost Cost
Jan , ,
, ,680
,470
,050 30

31. FIFO Perpetual
7-3
On January 30, purchased ten additional units of Item 127B at $22 each.
Item 127B
Units Cost Jan. 1 Inventory 100 $20
4 Sale 70
10 Purchase 80 21
22 Sale 40
28 Sale 20
30 Purchase 31

32. FIFO Perpetual
7-3
On January 30, purchased ten additional units of Item 127B at $22 each.
30 Merchandise Inventory
Accounts Payable 32

33. FIFO Perpetual
7-3
Item 127B
Purchases Cost of Mdse. Sold Inventory Balance
Unit Total Unit Total Unit Total Date Qty. Cost Cost Qty. Cost Cost Qty. Cost Cost
Jan , ,
, ,680
,470
,050
, , ,200 33

34. Cost of merchandise sold for January is $2,630.
FIFO Perpetual
7-3
Item 127B
Purchases Cost of Mdse. Sold Inventory Balance
Unit Total Unit Total Unit Total Date Qty. Cost Cost Qty. Cost Cost Qty. Cost Cost
Jan , ,
, ,680
,470
,050
, , ,200
Cost of merchandise sold for January is $2,630. 34

35. January 31, inventory is $3,250 ($1,050 + $2,200)
FIFO Perpetual
7-3
Item 127B
Purchases Cost of Mdse. Sold Inventory Balance
Unit Total Unit Total Unit Total Date Qty. Cost Cost Qty. Cost Cost Qty. Cost Cost
Jan , ,
, ,680
,470
,050
, , ,200
January 31, inventory is $3,250 ($1,050 + $2,200) 35

36. Nov. 1 Inventory 40 units at $5 5 Sale 32 units
7-3 -
Example Exercise 7-2
Beginning inventory, purchases, and sales for Item ER27 are as follows:
Nov. 1 Inventory 40 units at $5
5 Sale 32 units
11 Purchase 60 units at $7
21 Sale 45 units
Assuming a perpetual inventory system and the first-in, first-out (FIFO) method, determine (a) the cost of the merchandise sold for the November 21 sale and (b) the inventory on November 30. 36

37. Cost of merchandise sold: 8 units @ $5 $40 37 units @ $7 259
7-3
Follow My Example 7-2
Cost of merchandise sold:
8 $5 $40
37 $
45 units $299
Inventory, November 30:
$161 = (23 units x $7) 37
For Practice: PE 7-2A, PE 7-2B

38. LIFO Perpetual
7-3
On January 1, the firm had 100 units of Item 127B that cost $20 per unit.
Item 127B
Units Cost Jan. 1 Inventory 100 $20 38

39. On January 4, the firm sold 70 units of 127B at $30 each.
LIFO Perpetual
7-3
On January 4, the firm sold 70 units of 127B at $30 each.
Item 127B
Units Cost Jan. 1 Inventory 100 $20
4 Sale 70 39

40. On January 4, the firm sold 70 units of 127B at $30 each.
LIFO Perpetual
7-3
On January 4, the firm sold 70 units of 127B at $30 each.
4 Accounts Receivable
Sales
On January 22, the firm sold twenty units at $30.
4 Cost of Merchandise Sold
Merchandise Inventory 40

41. LIFO Perpetual
7-3
Item 127B
Purchases Cost of Mdse. Sold Inventory Balance
Unit Total Unit Total Unit Total Date Qty. Cost Cost Qty. Cost Cost Qty. Cost Cost
Jan ,000 , 41

42. On January 10, the firm purchased 80 units at $21 each.
LIFO Perpetual
7-3
On January 10, the firm purchased 80 units at $21 each.
Item 127B
Units Cost Jan. 1 Inventory 100 $20
4 Sale 70
10 Purchase 80 21 42

43. On January 10, the firm purchased 80 units at $21 each.
LIFO Perpetual
7-3
On January 10, the firm purchased 80 units at $21 each.
10 Merchandise Inventory
Accounts Payable 43

44. LIFO Perpetual
7-3
Item 127B
Purchases Cost of Mdse. Sold Inventory Balance
Unit Total Unit Total Unit Total Date Qty. Cost Cost Qty. Cost Cost Qty. Cost Cost
Jan , ,
, ,680 44

45. On January 22, the firm sold 40 units for $30 each.
LIFO Perpetual
7-3
On January 22, the firm sold 40 units for $30 each.
Item 127B
Units Cost Jan. 1 Inventory 100 $20
4 Sale 70
10 Purchase 80 21
22 Sale 40 45

46. On January 22, the firm sold 40 units for $30 each.
LIFO Perpetual
7-3
On January 22, the firm sold 40 units for $30 each.
22 Accounts Receivable
Sales
On January 22, the firm sold twenty units at $30.
22 Cost of Merchandise Sold
Merchandise Inventory 46

47. All of the 40 sold are considered to be from the January 10 purchase.
LIFO Perpetual
7-3
Item 127B
Purchases Cost of Mdse. Sold Inventory Balance
Unit Total Unit Total Unit Total Date Qty. Cost Cost Qty. Cost Cost Qty. Cost Cost
Jan , ,
, ,680
All of the 40 sold are considered to be from the January 10 purchase. 47

48. On January 28, the firm sold 20 units at $30 each.
LIFO Perpetual
7-3
On January 28, the firm sold 20 units at $30 each.
Item 127B
Units Cost Jan. 1 Inventory 100 $20
4 Sale 70
10 Purchase 80 21
22 Sale 40
28 Sale 20 48

49. On January 28, the firm sold 20 units at $30 each.
LIFO Perpetual
7-3
On January 28, the firm sold 20 units at $30 each.
28 Accounts Receivable
Sales
28 Cost of Merchandise Sold
Merchandise Inventory 49

50. All of the 20 sold are considered to be from the January 22 purchase.
LIFO Perpetual
7-3
Item 127B
Purchases Cost of Mdse. Sold Inventory Balance
Unit Total Unit Total Unit Total Date Qty. Cost Cost Qty. Cost Cost Qty. Cost Cost
Jan , ,
, ,680
All of the 20 sold are considered to be from the January 22 purchase. 50

51. LIFO Perpetual
7-3
On January 30, the firm purchased one hundred additional units of Item 127B at $22 each.
Item 127B
Units Cost Jan. 1 Inventory 100 $20
4 Sale 70
10 Purchase 80 21
22 Sale 40
28 Sale 20
30 Purchase 51

52. LIFO Perpetual
7-3
On January 30, the firm purchased one hundred additional units of Item 127B at $22 each.
30 Merchandise Inventory
Accounts Payable 52

53. 7-3 7-3 LIFO Perpetual LIFO Perpetual 53 33 Item 127B
LIFO Perpetual
LIFO Perpetual
7-3
7-3
Item 127B
Purchases Cost of Mdse. Sold Inventory Balance
Unit Total Unit Total Unit Total Date Qty. Cost Cost Qty. Cost Cost Qty. Cost Cost
Jan , ,
, ,680 ,
,200 53 33

54. Cost of merchandise sold $2,660
LIFO Perpetual
LIFO Perpetual
7-3
7-3
Item 127B
Purchases Cost of Mdse. Sold Inventory Balance
Unit Total Unit Total Unit Total Date Qty. Cost Cost Qty. Cost Cost Qty. Cost Cost
Jan , ,
, ,680 ,
,200 33 54
Cost of merchandise sold $2,660

55. 7-3 7-3 LIFO Perpetual LIFO Perpetual 33 55
LIFO Perpetual
LIFO Perpetual
7-3
7-3
Item 127B
Purchases Cost of Mdse. Sold Inventory Balance
Unit Total Unit Total Unit Total Date Qty. Cost Cost Qty. Cost Cost Qty. Cost Cost
Jan , ,
, ,680 ,
,200 33 55
January 31, inventory….. $3,220

56. Nov. 1 Inventory 40 units at $5 5 Sale 32 units
7-3 -
Example Exercise 7-3
Beginning inventory, purchases, and sales for Item ER27 are as follows:
Nov. 1 Inventory 40 units at $5
5 Sale 32 units
11 Purchase 60 units at $7
21 Sale 45 units
Assuming a perpetual inventory system and the last-in, first-out (LIFO) method, determine (a) the cost of the merchandise sold for the November 21 sale and (b) the inventory on November 30. 56

57. Cost of merchandise sold: $315 = (45 units x $7)
7-3
Follow My Example 7-3
Cost of merchandise sold:
$315 = (45 units x $7)
Inventory, November 30:
8 $5 $ 40
15 $
23 $145 57
For Practice: PE 7-3A, PE 7-3B

58. 7-4
Objective 4
Determine the cost of inventory under the periodic inventory system, using FIFO, LIFO, and average cost methods.

59. FIFO Periodic
7-4
Using FIFO, the earliest batch purchased is considered the first batch of merchandise sold. The physical flow does not have to match the accounting method chosen.

60. Cost of merchandise available for sale
FIFO Periodic
7-4
100 $20
= $2,000
Jan. 1
80 $21
Jan. 10
= 1,680
100 $22
Jan. 30
= 2,200
280 units available for sale during year
$5,880
Cost of merchandise available for sale 60

61. FIFO Periodic
7-4
The physical count on January 31 shows that 150 units are on hand (conclusion: 130 units were sold). What is the cost of the ending inventory?
100 $20
80 $21
100 $22
Jan. 1
Jan. 10
Jan. 30
Sold these
= $ 0
Sold 30 of these
= 1,050
50 $21
100 $22
= 2,200 61
Ending inventory $3,250

62. Now we can calculate the cost of goods sold as follows:
FIFO Periodic
7-4
Now we can calculate the cost of goods sold as follows:
Beginning inventory, January 1 (Slide 60) $2,000
Purchases ($1,680 + $2,200) 3,880
Cost of merchandise available for sale $5,880
Ending inventory, January 31(Slide 61) 3,250
Cost of merchandise sold $2,630 62

63. LIFO Periodic
7-4
Using LIFO, the most recent batch purchased is considered the first batch of merchandise sold. The actual flow of goods does not have to be LIFO. For example, a store selling fresh fish would want to sell the oldest fish first (which is FIFO) even though LIFO is used for accounting purposes.

64. Cost of merchandise available for sale
LIFO Periodic
7-4
100 $20
= $2,000
Jan. 1
80 $21
Jan. 10
= 1,680
100 $22
Jan. 30
= 2,200
280 units available for sale during year
$5,880
Cost of merchandise available for sale 64

65. LIFO Periodic
7-4
Assume again that the physical count on January 31 is 150 units (and that 130 units were sold). What is the cost of the ending inventory?
100 $20
80 $21
100 $22
Jan. 1
Jan. 10
Jan. 30
= $2,000
50 $21
= 1,050
= 1, 680
Sold 30 of these
Sold these
= 0
= 2,200
Ending inventory $3,050 65

66. Now we can calculate the cost of goods sold as follows:
LIFO Periodic
7-4
Now we can calculate the cost of goods sold as follows:
Beginning inventory, January 1 (Slide 64) $2,000
Purchases ($1,680 + $2,200) 3,880
Cost of merchandise available for sale $5,880
Ending inventory, January 31(Slide 65) 3,050
Cost of merchandise sold $2,830 66

67. Average Cost
7-4
The weighted average unit cost method is based on the average cost of identical units. The total cost of merchandise available for sale is divided by the related number of units of that item.

68. Average Cost
7-4
$5,880
= $2,000
= 1,680
= 2,200
100 $20
80 $21
100 $22
280
Jan. 1
Jan. 10
Jan. 30
100 $22
Average unit cost: $5,880 ÷ 280 = $21
Cost of merchandise sold: 130 units at $21 = $2,730
Ending merchandise inventory: 150 units at $21= $3,150 68

69. Now we can calculate the cost of goods sold as follows:
Average Cost
7-4
Now we can calculate the cost of goods sold as follows:
Beginning inventory, January 1 (Slide 68) $2,000
Purchases ($1,680 + $2,200) 3,880
Cost of merchandise available for sale $5,880
Ending inventory, January 31(Slide 68) 3,150
Cost of merchandise sold $2,730 69

70. 7-4 -
Example Exercise 7-4
The units of an item available for sale during the year were as follows:
Jan. 1 Inventory 6 $50 $ 300
Mar. 20 Purchase 14 $55 770
Oct. 30 Purchase 20 $62 1,240
Available for sale 40 units $2,310
There are 16 units of the item in the physical inventory at December 31. The periodic inventory system is used. Determine the inventory cost by (a) the first-in, first-out (FIFO) method, (b) the last-in, first-out (LIFO) method, and (c) the average cost method. 70

71. First-in, first-out (FIFO) method: $992 (16 units x $62)
7-4
Follow My Example 7-4
First-in, first-out (FIFO) method: $992 (16 units x $62)
Last-in, first-out (LIFO) method: $850 (6 units x $50) + (10 units x $55)
Average method: $924 (16 units x $57.75) where average cost = $57.75 ($2,310 ÷ 40 units) 71
For Practice: PE 7-4A, PE 7-4B

72. Compare and contrast the use of the three inventory costing methods.
7-5
Objective 5
Compare and contrast the use of the three inventory costing methods.

73. Cost of merchandise sold: Beginning inventory $2,000 Purchases 3,880
Partial Income Statements
7-5
First-In, First-Out
Net sales $3,900
Cost of merchandise sold:
Beginning inventory $2,000
Purchases 3,880
Merchandise available for sale $5,880
Less ending inventory 3,250
Cost of merchandise sold 2,630
Gross profit $1,270 73

74. Cost of merchandise sold: Beginning inventory $2,000 Purchases 3,880
Partial Income Statements
7-5
Average Cost
Net sales $3,900
Cost of merchandise sold:
Beginning inventory $2,000
Purchases 3,880
Merchandise available for sale $5,880
Less ending inventory 3,150
Cost of merchandise sold 2,730
Gross profit $1,170 74

75. Cost of merchandise sold: Beginning inventory $2,000 Purchases 3,880
Partial Income Statements
7-5
Last-In, First-Out
Net sales $3,900
Cost of merchandise sold:
Beginning inventory $2,000
Purchases 3,880
Merchandise available for sale $5,880
Less ending inventory 3,050
Cost of merchandise sold 2,830
Gross profit $1,070 75

76. Cost of merchandise sold $2,630 $2,730 $2,830
Recap
7-5
Weighted
FIFO LIFO Average
Ending inventory $3,250 $3,150 $3,050
Cost of merchandise sold $2,630 $2,730 $2,830
Gross profit $1,270 $1,170 $1,070

77. 7-6
Objective 6
Describe and illustrate the reporting of merchandise inventory in the financial statements.

78. Lower-of-Cost-or-Market Method
7-6
If the cost of replacing an item in inventory is lower than the original purchase cost, the lower-of-cost-or-market (LCM) method is used to value the inventory.

79. 7-6
Market, as used in lower of cost or market, is the cost to replace the merchandise on the inventory date.

80. Cost and replacement cost can be determined for—
7-6
Cost and replacement cost can be determined for—
each item in the inventory,
major classes or categories of inventory, or
the inventory as a whole.

81. 7-6
Determining Inventory at Lower-of-Cost-or-Market Method 81

82. 7-6
Merchandise that is out of date, spoiled, or damaged should be written down to its net realizable value. This is the estimated selling price less any direct cost of disposal, such as sales commissions.

83. Merchandise Inventory on the Balance Sheet
7-6
Merchandise inventory is usually presented in the Current Assets section of the balance sheet, following receivables.

84. 7-6
Both the method of determining the cost of inventory (FIFO, LIFO, or weighted average) should be shown.

85. Commodity Quantity Cost Price Market Price
7-6 -
Example Exercise 7-5
On the basis of the following data, determine the value of the inventory at the lower of cost or market. Apply lower of cost or market to each inventory item as shown in Exhibit 7.
Inventory Unit Unit
Commodity Quantity Cost Price Market Price
C17Y 10 $ 39 $40 B 85

86. For Practice: PE 7-5A, PE 7-5B
7-6 -
Follow My Example 7-5
Unit Unit Lower of
Commodity Qty Cost Price Market Price Cost Market C or M
C17Y 10 $ 39 $40 $ $ $ 390 B
Total $1,160 $1,086 $1,076 86
For Practice: PE 7-5A, PE 7-5B

87. 7-6 -
Example Exercise 7-6
Zula Repair Shop incorrectly counted its December 31, 2008 inventory as $250,000 instead of the correct amount of $220,000. Indicate the effect of the misstatement on Zula’s December 31, 2008 balance sheet and income statement for the year ended December 31, 2008. 87

88. Amount of Misstatement Overstatement (Understatement)-
7-6
Follow My Example 7-6
Amount of Misstatement Overstatement (Understatement)
Balance Sheet:
Merchandise inventory overstated $30,000
Current assets overstated 30,000
Total assets overstated 30,000
Owner’s equity overstated 30,000
Income Statement:
Cost of merchandise sold understated $(30,000)
Gross profit overstated 30,000
Net income overstated 30,000 88
For Practice: PE 7-6A, PE 7-6B

89. 7-7
Objective 7
Estimate the cost of inventory, using the retail method and the gross profit method.

90. Retail Inventory Method
7-7
The retail inventory method of estimating inventory cost is based on the relationship of the cost of merchandise available for sale to the retail price of the same merchandise.

91. 7-7
Determining Inventory by the Retail Method 91

92. For Practice: PE 7-7A, PE 7-7B
7-7
Example Exercise 7-7
A business using the retail method of inventory costing determines that merchandise inventory at retail is $900,000. If the ratio of cost to retail price is 70%, what is the amount of inventory to be reported on the financial statements?
Follow My Example 7-7
$630,000 ($900,000 x 70%)
For Practice: PE 7-7A, PE 7-7B 92

93. 61
Gross Profit Method
7-7
The gross profit method uses the estimated gross profit for the period to estimate the inventory at the end of the period.

94. 7-7
Estimating Inventory by Gross Profit Method 94

95. 7-7
The gross profit method is useful for estimating inventories for monthly or quarterly financial statements in a periodic inventory system.

96. Sales (net) $1,250,000 Estimated gross profit rate 40%
7-7
Example Exercise 7-8
Based on the following data, estimate the cost of ending merchandise inventory:
Sales (net) $1,250,000 Estimated gross profit rate 40%
Beginning merchandise inventory $100,000
Purchases (net) 800,000
Merchandise available for sale $900,000 96

97. Merchandise available for sale $900,000 Less cost of merchandise sold
7-7
Follow My Example 7-8
Merchandise available for sale $900,000
Less cost of merchandise sold
[$1,250,000 x (100% – 40%)] 750,000
Estimated ending merchandise inventory $150,000 97
For Practice: PE 7-8A, PE 7-8B

98. Cost of merchandise sold
7-7
Inventory turnover measures the relationship between the volume of goods (merchandise) sold and the amount of inventory carried during the period.
Cost of merchandise sold
Average inventory
Inventory turnover =

99. Inventory turnover 15.8 times 1.4 times
7-7
SUPERVALU Zale
Cost of merchandise sold $16,681,472,000 $1,157,226,000
Inventories:
Beginning of year $1,078,343,000 $826,824,000
End of year $1,032,034,000 $853,580,000
Average $1,055,188,500 $840,202,000
Inventory turnover 15.8 times 1.4 times 99

100. 7-7
Generally, the larger the inventory turnover, the more efficient and effective the management of inventory.

101. 7-7
The number of days’ sales in inventory is a rough measure of the length of time it takes to acquire, sell, and replace the inventory.
Number of days’ sales in inventory =
Average inventory
Average daily cost of merchandise sold

102. 7-7 SUPERVALU Zale Number of days’ sales
7-7
SUPERVALU Zale
Average daily cost of
merchandise sold:
$16,681,472,000/365 $45,702,663
$1,157,226,000/365 $3,170,482
Average inventory $1,055,188,500 $840,202,000
Number of days’ sales
in inventory 23.1 days days
102