Time period Net Revenue           (millions) COGS (million) Ending Inventory (millions ) FY 2012     189 1st quarter 2013 114 89 238 2nd quarter 2013 237 149 237 3rd quarter 2013 193 136 217 4th quarter 2013 119 98 203         FY 2013 663 472 203 1st quarter 2014 113 88 245 2nd quarter 2014 236 154 244 3rd quarter 2014 197 138 215 4th quarter 2014 130 103 214         FY 2014 676 483 214   West Marine Inc. opened its first boating supply store in 1975. Since that time the company has grown to be one of the largest boasting supply companies in the world, with fiscal year 2014 revenues in excess of $675 million. a. Using the fiscal year (annual) information for 2013 and 2014, calculate the gross profit margin and inventory turnover ratio. b. West Marine is a seasonal business, in which the sales total for the 2nd and 3rd quarter is substantially higher than the sales total for the 1st and 4th quarters. What do you learn from the seasonal pattern the gross profit margins? c. What is the seasonal pattern in inventory balances? What effect does West Marine’s choice of fiscal year end have on the inventory turnover ratio calculated in a? d. Recalculate West Marine’s inventory turnover ratio from 2013 and 2014 using a weighted average of the company’s inventory investment over the year.

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Inventory Valuation

Before discussing the topic inventory valuation let’s discuss the meaning of inventory. In accounting, inventory is also known as stock. Inventory means all the finished goods, materials, merchandise that a business holds for the purpose of selling it in the market with the motive of earning profit.