Case

b. LIFO cost of goods sold = 600 @ $12 = $7,200

LIFO ending inventories = $12,400 - $7,200 = $5,200

c. AC cost of goods sold = 600 @ $12,400 / 1,100 = $6,764

AC ending inventories = $12,400 – $6,764 = $5,636

M 6-18 (20 minutes)

a.

| |Inventory Turnover rates for 2010 |

|ANF |$1,257 / [ ($386 + $311) / 2 ] = 3.61 |

|TJX |$16,040 / [($2,765+$2,532) /2] = 6.06 |

b. TJX’s inventory turnover rate is higher than ANF’s. TJX concentrates on the value-priced end of the clothing spectrum. Thus, it realizes a lower profit margin that must be offset with higher turnover to yield an acceptable return on net operating assets (see discussion of profitability and turnover in Module 4).

c. Inventory turnover improves as the volume of goods sold increases relative to the dollar value of goods available for sale. Retailers must balance the cost savings from inventory reductions against the marketing implications of lower inventory levels. Companies can lower inventory levels by reducing the depth and breadth of product lines carried (such as not carrying every style, size and color), eliminating slow-moving product lines, working with suppliers to arrange for delivery when needed, and marking down goods for sale at the end of product seasons.

M 6-19 (15 minutes)

a. Straight-line: ($18,000 - $1,500) / 5 years = $3,300 for both years

b. Double-declining-balance: Twice straight-line rate = 2 × 1/5 = 40%

1st year: $18,000 × 0.40 = $7,200

2nd year: ($18,000 - $7,200) × 0.40 = $4,320

Notice that, over the first two years, the company reports $6,600 ($3,300 x 2) of depreciation expense under the straight-line method and $11,520 ($7,200 + $4,320) of...