Question

The following information is available for Netto Company for 2021. Netto uses the LIFO Inventory method.

Beginning Inventory: $700,000
Ending Inventory: $800,000
Beginning LIFO reserve: $300,000
Ending LIFO reserve: $380,000
Cost of goods sold: $5,910,000
Sales: $8,600,000
Instructions:

Calculate the inventory turnover ratio and days in inventory for Netto based on UFO.
Calculate the inventory turnover ratio and days in inventory on a FIFO basis after adjusting for the LIFO reserve.

Answer 1

To calculate the inventory turnover and days in inventory for Netto based on the LIFO and FIFO methods respectively, follow the steps and formulas provided.

Step-by-step explanation:

To calculate the inventory turnover ratio for Netto based on the LIFO method, we divide the cost of goods sold by the average inventory. The formula is:

Inventory Turnover Ratio = Cost of Goods Sold / ((Beginning Inventory + Ending Inventory) / 2)

Using the given values:

Inventory Turnover Ratio = $5,910,000 / (($700,000 + $800,000) / 2)

Calculate the days in inventory by dividing 365 by the inventory turnover ratio:

Days in Inventory = 365 / Inventory Turnover Ratio

For the FIFO method, we need to adjust for the LIFO reserve. The adjusted ending inventory is:

Adjusted Ending Inventory = Ending Inventory + Ending LIFO Reserve

Then, calculate the inventory turnover ratio and days in inventory using the adjusted ending inventory: