Base your answer to question 15 on the following data obtained from the records of the Double Faces Shop as of December 31, 20X1.

REQUIRED: Using the work sheet provided at the back of this unit, compute the December 31, 20X1, inventory at cost, using the retail inventory method. Then answer the following question.

Question 15: The ending inventory at cost is

A. $10,833. C. $3,900.

B. $6,500. D. $2,600.

Base your answer to question 16 on the following account balances taken from the ledger of the Moon Light Corp as of December 31, 20X3.

REQUIRED: The gross profit was 30% of net sales in all previous years. Prepare an estimate of the December 31, 20X3, inventory, using the work sheet provided at the back of this unit, and then answer question 16

Question 16: The estimated December 31, 20X3, inventory, computed by using the gross-profit method of estimating inventories is

A. $123,838. C. $113,170.

B. $117,938. D. $111,210.

• Attachment 1
• Attachment 2

Inventory – December 31, 20 x0 :Cost$ 15 , 210Selling price28, 420Purchases :"Cost93, 450Selling price15 4, 900Transportation – in1 , 560Returns !Purchases :"Cost2, 220Selling price3 , 320Sales173 , 500

 

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Inventory costing comes in many different sizes. LIFO, FIFO, weighted average, and moving average are just some of the methods under US GAAP. Why are there so many methods available under US GAPP and why would a company prefer one over the other?1-2 paragraphs

There are many methods under US GAAP for inventory costing. This is because of the fact that, pricing ofissue of materials in not easy as the pricing of receipts. This is due to reason that…

 

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1. Inventory costs and levels have declined in relation to the gross domestic product (GDP) in recent years. Carrying high levels of inventory can be costly and risky. Organizations are developing techniques to reduce the levels of inventory they must maintain, as well as their associated costs. How have new approaches influenced inventory information delivery in your organization? Describe: 1) any significant declines in inventory costs (this can include digital storage) and levels for your organization over the span of the past 20 years, 2) how have costs of carrying high levels of inventory (such as financing, opportunity, obsolescence, and pilferage) in your organization changed as a result, and 3) what benefits you can attribute to these declines. Discuss any best practices that leading companies are employing in your industry.2. Historically, the use of trucking has vastly outweighed the use of other modes of transportation. With fuel prices on the rise today, and given current economic conditions, it is likely that there will be both short- and long-term changes ahead for most industries using this mode. What changes do you see in the preferred modes of transportation for your industry sector? What changes can you discern among potential areas for improvement? Can you identify any challenges that less-versatile, less-capable companies may face if they cannot be flexible in embracing new modes of transportation? Describe some of the best practices, in the area of transportation mode utilization, that leading companies in your industry have embraced. “The company” can replace “your company”

 

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INVENTORY MANAGEMENT AT BIG10SWEATERS.COM

 is a new company started last year by two recent college graduates. The idea behind the company was simple. It will sell premium logo sweaters for Big Ten colleges with one major, unique feature. This unique feature is a special large monogram that has the customer’s name, major, and year of graduation. The sweater is the perfect gift for graduating students and alumni, particularly avid football fans who want to show support during the football season. The company is off to a great start and had a successful first year while selling to only a few schools. This year it plans to expand to a few more schools and target the entire Big Ten Conference within three years.

You have been hired by  and need to make a good impression by making good supply chain decisions. This is your big opportunity with a start-up. There are only two people in the firm and you were hired with the prospect of possibly becoming a principal in the future. You majored in supply chain (operations) management in school and had a great internship at a big retailer that was getting into Internet sales. The experience was great, but now you are on your own and have none of the great support that the big company had. You need to find and analyze your own data and make some big decisions. Of course, Rhonda and Steve, the partners who started the company, are knowledgeable about this venture and they are going to help along the way.

Rhonda had the idea to start the company two years ago and talked her friend from business school, Steve, into joining her. Rhonda is into Web marketing, has a degree in computer science, and has been working on completing an online MBA. She is as much an artist as a techie. She can really make the Website sing.

Steve majored in accounting and likes to pump the numbers. He has done a great job of keeping the books and selling the company to some small venture capital people in the area. Last year, he was successful in getting them to invest $2,000,000 in the company (a onetime investment). There were some significant strings attached to this investment in that it stipulated that only $100,000 per year could go toward paying the salary of the two principals. The rest had to be spent on the Website, advertising, and inventory. In addition, the venture capital company gets 25 percent of the company profits, before taxes, during the first four years of operation, assuming the company makes a profit.

Your first job is to focus on the firm’s inventory. The company is centered on selling the premium sweaters to college football fans through a Website. Your analysis is important since a significant portion of the company’s assets is the inventory that it carries.

The business is cyclic, and sales are concentrated during the period leading up to the college football season, which runs between late August and the end of each year. For the upcoming season, the firm wants to sell sweaters to only a few of the largest schools in the Midwest region of the United States. In particular, it is targeting the Ohio State University (OSU), University of Michigan (UM), Michigan State University (MSU), Purdue University (PU), and Indiana University (IU). These five schools have major football programs and a loyal fan base.

The firm has considered the idea of making the sweaters in its own factory, but for now it purchases them from a supplier in China. The prices are great, but service is a problem since the supplier has a 20-week lead time for each order and the minimum order size is 5,000 sweaters. The order can consist of a mix of the different logos, such as 2,000 for OSU, 1,500 for UM, 750 for MSU, 500 for PU, and 250 for IU. Within each logo sub lot, sizes are allocated based on percentages and the supplier suggests 20 percent X-large, 50 percent large, 20 percent medium, and 10 percent small based on its historical data.

Once an order is received, a local subcontractor applies the monograms and ships the sweaters to the customer. The subcontractor stores the inventory of sweaters for the company in a small warehouse area located at their site.

This is the company’s second year of operation. Last year, it sold sweaters for only three of the schools, OSU, MU, and PU. It ordered the minimum 5,000 sweaters and sold all of them, but the experience was painful because the company had too many MU sweaters and not enough for OSU fans. Last year, it ordered 2,300 OSU, 1,800 MU, and 900 PU sweaters. Of the 5,000 sweaters, 342 had to be sold at a steep discount on eBay after the season. The company was hoping not to have this occur again.

For the next year, you have collected some data relevant to the decision.  shows cost information for the product when purchased from the supplier in China. Here we see that the cost for each sweater, delivered to the warehouse of our monogramming subcontractor, is $60.88. This price is valid for any quantity we order above 5,000 sweaters. This order can be a mix of sweaters for each of the five schools we are targeting. The supplier needs 20 weeks to process the order, so the order needs to be placed around April 1 for the upcoming football season.

exhibit 11.12

. The exact sales numbers for last year are given. Sweaters sold at full retail price were sold for $120 each. Sweaters left over at the end of the season were sold through eBay for $50 each and these sweaters were not monogrammed by our subcontractor. Keep in mind that the retail sales numbers do not accurately reflect actual demand since they stocked out of the OSU sweaters toward the end of the season.

exhibit 11.13

. To generate some statistics, you have averaged the forecasts and calculated the standard deviation for each school and in total.

Based on advice from the market research firm, you have decided to use the aggregate demand forecast and standard deviation for the aggregate demand. The aggregate demand was calculated by adding the average forecast for each item. The aggregate standard deviation was calculated by squaring the standard deviation for each item (this is the variance), summing the variance for each item, and then taking the square root of this sum. This assumes that the demand for each school is independent, meaning that the demand for Ohio State is totally unrelated to the demand at Michigan and the other schools.

You will allocate your aggregate order to the individual schools based on their expected percentage of total demand. You discussed your analysis with Rhonda and Steve and they are OK with your analysis. They would like to see what the order quantities would be if each school was considered individually.

You have a spreadsheet set up with all the data from the exhibits called Big10Sweater.xls and you are ready to do some calculations.

1. You are curious as to how much Rhonda and Steve made in their business last year. You do not have all the data, but you know that most of their expenses relate to buying the sweaters and having them monogrammed. You know they paid themselves $50,000 each and you know the rent, utilities, insurance, and a benefit package for the business was about $20,000. About how much do you think they made “before taxes” last year? If they must make their payment to the venture capital firm, and then pay 50 percent in taxes, what was their increase in cash last year?
2. What was your reasoning behind using the aggregate demand forecast when determining the size of your order rather than the individual school forecasts? Should you rethink this or is there a sound basis for doing it this way?
3. How many sweaters should you order this year? Break down your order by individual school. Document your calculations in your spreadsheet. Calculate this based on the aggregate forecast and also the forecast by individual school.
4. What do you think they could make this year? They are paying you $40,000 and you expect your benefit package addition would be about $1,000 per year. Assume that they order based on the aggregate forecast.
5. How should the business be developed in the future? Be specific and consider changes related to your supplier, the monogramming subcontractor, target customers, and products

 

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Inventory Methods

With several different inventory valuation methods available,

(1) select a type of business and recommend an inventory method that the business should use.

(2) Explain your selection.  

(3) Also, in your response provide at least one example of an accounting transaction and include a detailed explanation of the transaction referring to debits and credits.

 

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