ACCOUNTING,CHAP.1-13
26th Edition
ISBN: 9781305088412
Author: WARREN
Publisher: CENGAGE L
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
Chapter 7, Problem 7.4CP
Inventory ratios for Dell and HP
Dell Inc. and Hewlett-Packard Development Company, L.P. (HP) are both manufacturers of computer equipment and peripherals. However, the two companies follow two different strategies. Dell follows primarily a build-to-order strategy, where the consumer orders the computer from a Web page. The order is then manufactured and shipped to the customer within days of the order. In contrast, HP follows a build-to-stock strategy, where the computer is first built for inventory, then sold from inventory to retailers, such as Best Buy. The two strategies can be seen in the difference between the inventory turnover and number of days’ sales in inventory ratios for the two companies. The following financial statement information is provided for Dell and HP for a recent fiscal year (in millions):
a. Determine the inventory turnover ratio and the number of days’ sales in inventory ratio for each company. Use 365 days and round to one decimal place.
b. Interpret the difference between the ratios for the two companies.
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
Inventory Analysis
QT, Inc. and Elppa Computers, Inc. compete with each other in the personal computer market. QT assembles computers to customer orders, building and delivering a computer within four days of a customer entering an order online. Elppa, on the
other hand, builds computers for inventory prior to receiving an order. These computers are sold from inventory once an order is received. Selected financial information for both companies from recent financial statements follows (in millions):
QT
Elppa
Sales
$52,560
$65,800
Cost of goods sold
43,800
62,050
Inventory, beginning of period
1,856
7,339
Inventory, end of period
2,056
8,539
a. Determine for both companies (1) the inventory turnover and (2) the number of days' sales in inventory. Round your calculations and answers to one decimal place. Assume 365 days a year.
QT
Elppa
1. Inventory turnover
2. Number of days' sales in inventory
days
days
QT, Inc. and Elppa Computers, Inc. compete with each other in the personal computer market. QT assembles computers to customer orders, building and delivering a computer within four days of a customer entering an order online. Elppa, on the other hand, builds computers for inventory prior to receiving an order. These computers are sold from inventory once an order is received. Selected financial information for both companies from recent financial statements follows (in millions):
QT
Elppa
Sales
$35,040
$46,400
Cost of goods sold
29,200
43,800
Inventory, beginning of period
932
4,028
Inventory, end of period
1,132
4,828
a. Determine for both companies (1) the inventory turnover and (2) the number of days' sales in inventory. Round your calculations and answers to one decimal place. Assume 365 days a year.
(refer to image)
b. QT has a ______ (higher/lower) inventory turnover ratio than does Elppa Company. Likewise, QT has a _____ (larger/smaller) number…
The level of inventory a company maintains has important economic consequences, and it involves conflicting goals. The ability to control inventory levels is a critical skill in managing a business.
Three retailing giants, Best Buy Co., Inc. (NYSE: BBY), Amazon.com, Inc., (NASDAQ: AMZN), and Target Corporation (NYSE: TGT) each use a different inventory costing method. Best Buy uses weighted-average cost, Amazon uses FIFO, and Target uses LIFO.
Below is a hypothetical example that highlights the potential differences in income statements and balance sheets that could arise simply because of the use of a different inventory costing method.
Assume that all three retailers sell a popular shirt that retails for $32. To compare the impact of inventory costing method, we will also assume that all three retailers have the following inventory and sales data for the same period. To keep the calculations simple, a “unit” represents one million shirts.
Beginning inventory: 3 units @ $10.00…
Chapter 7 Solutions
ACCOUNTING,CHAP.1-13
Ch. 7 - Prob. 1DQCh. 7 - Why is it important to take a physical inventory...Ch. 7 - Do the terms FIFO, LIFO, and weighted average...Ch. 7 - If merchandise inventory is being valued at cost...Ch. 7 - Which of the three methods of inventory...Ch. 7 - If inventory is being valued at cost and the price...Ch. 7 - Using the following data, how should the...Ch. 7 - The inventory at the end of the year was...Ch. 7 - Hutch Co. sold merchandise to Bibbins Company on...Ch. 7 - A manufacturer shipped merchandise to a retailer...
Ch. 7 - Cost flow methods The following three identical...Ch. 7 - Cost flow methods The following three identical...Ch. 7 - Perpetual inventory using FIFO Beginning...Ch. 7 - Perpetual inventory using FIFO Beginning...Ch. 7 - Perpetual inventory using LIFO Beginning...Ch. 7 - Perpetual inventory using LIFO Beginning...Ch. 7 - Perpetual inventory using weighted average...Ch. 7 - Perpetual inventory using weighted average...Ch. 7 - Periodic inventory using FIFO, LIFO, and weighted...Ch. 7 - Periodic inventory using FIFO, LIFO, and weighted...Ch. 7 - Lower-of-cost-or-market method On the basis of the...Ch. 7 - Prob. 7.6BPECh. 7 - Prob. 7.7APECh. 7 - Prob. 7.7BPECh. 7 - Prob. 7.8APECh. 7 - Prob. 7.8BPECh. 7 - Control of inventories Triple Creek Hardware Store...Ch. 7 - Control of inventories Hardcase Luggage Shop is a...Ch. 7 - Perpetual inventory using FIFO Beginning...Ch. 7 - Perpetual inventory using LIFO Assume that the...Ch. 7 - Perpetual inventory using LIFO Beginning...Ch. 7 - Perpetual inventory using FIFO Assume that the...Ch. 7 - FIFO and LIFO costs under perpetual inventory...Ch. 7 - Weighted average cost flow method under perpetual...Ch. 7 - Weighted average cost flow method under perpetual...Ch. 7 - Perpetual inventory using FIFO Assume that the...Ch. 7 - Perpetual inventory using LIFO Assume that the...Ch. 7 - Prob. 7.12EXCh. 7 - Periodic inventory by three methods; cost of...Ch. 7 - Comparing inventory methods Assume that a firm...Ch. 7 - Lower-of-cost-or-market inventory On the basis of...Ch. 7 - Merchandise inventory on the balance sheet Based...Ch. 7 - Prob. 7.17EXCh. 7 - Prob. 7.18EXCh. 7 - Error in inventory During 2016, the accountant...Ch. 7 - Inventory turnover The following data (in...Ch. 7 - Inventory turnover and number of days' sales in...Ch. 7 - Retail method A business using the retail method...Ch. 7 - Retail method A business using the retail method...Ch. 7 - Retail method A business using the retail method...Ch. 7 - Retail method On the basis of the following data,...Ch. 7 - Gross profit method The merchandise inventory was...Ch. 7 - Gross profit method Based on the following data,...Ch. 7 - Gross profit method Based on the following data,...Ch. 7 - FIFO perpetual inventory The beginning inventory...Ch. 7 - LIFO perpetual inventory The beginning inventory...Ch. 7 - Weighted average cost method with perpetual...Ch. 7 - Prob. 7.4APRCh. 7 - Prob. 7.5APRCh. 7 - Lower-of-cost-or-market inventory Data on the...Ch. 7 - Retail method; gross profit method Selected data...Ch. 7 - FIFO perpetual inventory The beginning inventory...Ch. 7 - LIFO perpetual inventory The beginning inventory...Ch. 7 - Weighted average cost method with perpetual...Ch. 7 - Periodic inventory by three methods The beginning...Ch. 7 - Periodic inventory by three methods Pappas...Ch. 7 - Lower-of-cost-or-market inventory Data on the...Ch. 7 - Retail method; gross profit method Selected data...Ch. 7 - Prob. 7.1CPCh. 7 - LIFO and inventory flows The following is an...Ch. 7 - Costing inventory Golden Eagle Company began...Ch. 7 - Inventory ratios for Dell and HP Dell Inc. and...Ch. 7 - Comparing inventory ratios for two companies...Ch. 7 - Prob. 7.6CP
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Amazon.com, Inc. (AMZN) is one of the largest Internet retailers in the world. Target Corporation (TGT) is one of the largest value-priced general merchandisers operating in the L'nited States. Target sells through nearly 1,800 brick-and-mortar stores and through the Internet. Amazon and Target compete for customers across a wide variety of products, including media, general merchandise, apparel, and consumer electronics. Cost of goods sold and inventory information from a recent annual report are provided for both companies as follows (in millions): a. Compute the inventory turnover far both companies. Round all calculations to one decimal place.b. Compute the number of days' sales in inventory for both companies. Use 365 days and round all calculations to one decimal place.c. - Which company has the better inventory efficiency?d. What might explain the difference in inventory efficiency between the two companies?arrow_forwardST is adistribution company which buys a product in bulk from manufacturers, repackages the product into smaller packs and then sells the packs to retail customers. ST’s customers vary in size and consequently the size and frequency of their orders also varies. Some customers order large quantities from ST each time they place an order. Other customers order only a few packs each time. The current accounting system of ST produces very basic management information that reports only the overall company profit. ST is therefore unaware of the costs of servicing individual customers. However, the company has now decided to investigate the use of Direct Customer Profitability Analysis (DCPA). ST would like to see the results from a small sample of customers before it decides whether to fully introduce DCPA. The information for two customers, and for the whole company, for the previous period was as follows:…arrow_forwardGoogle Inc. is a technology company specializing in Internet-related products and services, including its famous web search engine. Whirlpool Corp. manufactures home appliances including laundry appliances, refrigerators, and dishwashers. Google has a market - to - book ratio of 3.8. Based on your knowledge of the industries in which these two companies compete, and the determinants of the M/B ratio, would you estimate that Whirlpool's market-to - book ratio is O A. less than Google's M/B ratio of 3.8 O B. approximately equal to Google's M/B ratio of 3.8 O C. greater than Google's M/B ratio of 3.8arrow_forward
- Companies that sell products and goods will have inventory and cost of goods sold accounts. The basic cost of goods sold equation is: Beginning Inventory + Purchases – Ending Inventory = Cost of Goods Sold The ending inventory of one period is the beginning inventory of the next period. Businesses that offer services do not normally sell products as their primary business activity but may sell them to supplement their services. What additional accounts would you expect to find in a manufacturing firm and how do they relate to the cost of goods sold?arrow_forwardAmazon.com, Inc. (AMZN) is one of the largest Internet retailers in the world. Target Corporation (TGT) is one of the largest value-priced general merchandisers operating in the United States. Target sells through nearly 1,800 brick-and-mortar stores and through the Internet. Amazon and Target compete for customers across a wide variety of products, including media, general merchandise, apparel, and consumer electronics. Cost of goods sold and inventory information from a recent annual report are provided for both companies as follows (in millions): a. Compute the inventory turnover for both companies. Round all calculations to one decimal place. b. Compute the number of days sales in inventory for both companies. Use 365 days and round all calculations to one decimal place. c. Which company has the better inventory efficiency? d. What might explain the difference in inventory efficiency between the two companies?arrow_forwardThe new owners of Sheraton Natural Foods Inc. have hired you to help them diagnose and cure problems that the company has had in maintaining adequate liquidity. As a first step, you perform a liquidity analysis. You then do an analysis of the company’s short-term activity ratios. Your calculations and appropriate industry norms are listed. Ratio Sheraton Industry Norm Current ratio 4.5 4.0 Quick ratio 2.0 3.1 Inventory turnover 6.0 10.4 Average collection period 73 days 52 days Average payment period 31 days 40 days Requirements: What recommendations relative to the amount and the handling of inventory could you make…arrow_forward
- Required information [The following information applies to the questions displayed below.] BookWeb, Incorporated, sells books and software over the Internet. A recent article in a trade journal has caught the attention of management because the company has experienced soaring inventory handling costs. The article notes that similar firms have purchasing, warehousing, and distribution costs that average 13 percent of sales. Thirteen percent is attractive to BookWeb management when compared to its results for the past year, shown in the following table: Activity (cost) Cost Driver Cost Driver % of Cost Driver % of Cost Driver Quantity Incoming receipts ($300,000) Warehousing ($360,000) Shipments ($225,000) Number of purchase orders Number of inventory moves Number of shipments 2,000 9,000 for Books 70% 80% for Software 30% 20% 15,000 25% 75% Book sales revenue totaled $3,900,000 and software sales revenue totaled $2,600,000. A review of the company's activities found various…arrow_forwardSilver Limited is a manufacturing company that produces furniture. To improve efficiency and usefulness, Silver Limited is constantly incorporating advanced, information technology into its business information systems. When Silver Limited does not have available production capacity, sometimes it purchases furniture from outside suppliers to fulfill customer orders. First, Inventory Control prepares a purchase requisition when inventory approaches the reorder point and sends it to Purchasing and Accounts Payable. Then, Purchasing locates the authorized vendor in the vendor file, prepares a purchase order, and updates the purchase order file. Purchasing then sends the purchase order to Vendor, Receiving, and Accounts Payable. Accounts Payable prepares a summary of all purchase orders issued that day and forwards the total to General Ledger for posting to the GL file. Goods arrive at Receiving with a packing slip. Receiving prepares a receiving report and forwards it with the goods to…arrow_forwardSilver Limited is a manufacturing company that produces furniture. To improve efficiency and usefulness, Silver Limited is constantly incorporating advanced, information technology into its business information systems. When Silver Limited does not have available production capacity, sometimes it purchases furniture from outside suppliers to fulfill customer orders. First, Inventory Control prepares a purchase requisition when inventory approaches the reorder point and sends it to Purchasing and Accounts Payable. Then, Purchasing locates the authorized vendor in the vendor file, prepares a purchase order, and updates the purchase order file. Purchasing then sends the purchase order to Vendor, Receiving, and Accounts Payable. Accounts Payable prepares a summary of all purchase orders issued that day and forwards the total to General Ledger for posting to the GL file. Goods arrive at Receiving with a packing slip. Receiving prepares a receiving report and forwards it with the goods to…arrow_forward
- Silver Limited is a manufacturing company that produces furniture. To improve efficiency and usefulness, Silver Limited is constantly incorporating advanced, information technology into its business information systems. When Silver Limited does not have available production capacity, sometimes it purchases furniture from outside suppliers to fulfill customer orders. First, Inventory Control prepares a purchase requisition when inventory approaches the reorder point and sends it to Purchasing and Accounts Payable. Then, Purchasing locates the authorized vendor in the vendor file, prepares a purchase order, and updates the purchase order file. Purchasing then sends the purchase order to Vendor, Receiving, and Accounts Payable. Accounts Payable prepares a summary of all purchase orders issued that day and forwards the total to General Ledger for posting to the GL file. Goods arrive at Receiving with a packing slip. Receiving prepares a receiving report and forwards it with the goods to…arrow_forwardSilver Limited is a manufacturing company that produces furniture. To improve efficiency and usefulness, Silver Limited is constantly incorporating advanced, information technology into its business information systems. When Silver Limited does not have available production capacity, sometimes it purchases furniture from outside suppliers to fulfill customer orders. First, Inventory Control prepares a purchase requisition when inventory approaches the reorder point and sends it to Purchasing and Accounts Payable. Then, Purchasing locates the authorized vendor in the vendor file, prepares a purchase order, and updates the purchase order file. Purchasing then sends the purchase order to Vendor, Receiving, and Accounts Payable. Accounts Payable prepares a summary of all purchase orders issued that day andforwards the total to the General Ledger for posting to the GL file. Goods arrive at Receiving with a packing slip. Receiving prepares a receiving report and forwards it with the goods to…arrow_forwardSilver Limited is a manufacturing company that produces furniture. To improve efficiency and usefulness, Silver Limited is constantly incorporating advanced, information technology into its business information systems. When Silver Limited does not have available production capacity, sometimes it purchases furniture from outside suppliers to fulfill customer orders. First, Inventory Control prepares a purchase requisition when inventory approaches the reorder point and sends it to Purchasing and Accounts Payable. Then, Purchasing locates the authorized vendor in the vendor file, prepares a purchase order, and updates the purchase order file. Purchasing then sends the purchase order to Vendor, Receiving, and Accounts Payable. Accounts Payable prepares a summary of all purchase orders issued that day andforwards the total to the General Ledger for posting to the GL file. Goods arrive at Receiving with a packing slip. Receiving prepares a receiving report and forwards it with the goods to…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Financial AccountingAccountingISBN:9781305088436Author:Carl Warren, Jim Reeve, Jonathan DuchacPublisher:Cengage Learning
Financial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,
Financial Accounting
Accounting
ISBN:9781305088436
Author:Carl Warren, Jim Reeve, Jonathan Duchac
Publisher:Cengage Learning
Financial And Managerial Accounting
Accounting
ISBN:9781337902663
Author:WARREN, Carl S.
Publisher:Cengage Learning,
What is Business Analysis?; Author: WolvesAndFinance;https://www.youtube.com/watch?v=gG2WpW3sr6k;License: Standard Youtube License