FINANCIAL STATEMENT ANALYSIS CASE 3 Net Sales............................................. Cost of sales (using LIFO)................. Year-end inventories using FIFO...... Year-end inventories using LIFO...... Difference................................... FIFO adjusted cost of sales................ (a) (1) (2) Jan. 31 2015 $108,465 Feb. 1 2014 $98,375 85,512 78,138 6,801 5,651 (1,245) (1,150) $84,267 $76,988 6,933 5,688 (2) (c) Inventory turnover using sales and LIFO* 2015 19.13 Recall that the formula for computing inventory turnover in part (b) is Sales/Average Inventory Inventory turnover using sales and 15.80 FIFO* Using sales instead of cost of goods sold accounts for the mark-up in the inventory. By using cost of goods sold, there is a better matching of the costs associated to inventory, and should result in more useful information. *Computation's for Inventory Turnover a) Inventory turnover LIFO–2015-85,512/{(5,688+5,651)/2} 2014–78,138/{(5,651+5,146)/2} Inventory turnover FIFO–2015-85,512/{(6,933+6,801)/2} 2014–78,138/{(6,801+6,244)/2} b) Inventory turnover FIFO–2015-108,465/{(5,688+5,651)/2} 2014–98,375/{(5,651+5,146)/2} 8-74 76,726 6,244 5,146 (1,098) $75,628 2015 2014 Inventory turnover @LIFO* 15.08 14.47 Inventory turnover @FIFO* 12.45 11.98 Recall that the formula for computing inventory turnover is Cost of Sales/Average Inventory (b) (1) Feb. 2 2013 $96,619 2014 18.22 15.08 Inventory turnover LIFO–2015-108,465/{(6,933+6,801)/2} 2014–98,375/{(6,801+6,244)/2} LO: 3, Bloom: AN, Difficulty: Complex, Time: 10-15, AACSB: Analytic, Communication, AICPA BB: None Reporting, Research, AICPA PC: Communication 8-75