I need the answer for c and d only. Reported the following data in its annual re
ID: 2486948 • Letter: I
Question
I need the answer for c and d only. Reported the following data in its annual report. Compute SUPERVALU's inventory turnovers for 2011 and 2012, using: Cost of sales and LIFO inventory. Cost of sales and FIFO inventory. Some firms calculate inventory turnover using sales rather than cost of goods sold in the numerator. Calculate SUPERVALU's 2011 and 2012 turnover, using: Sales and LIFO inventory. Sales and FIFO inventory. Describe the method that SUPERVALU's appears to use. State which method you would choose to evaluate SUPERVALU's performance. Justify your choice.Explanation / Answer
c. SUPERVALU appear to use Cost of sales as numertor to find inventory turnover ratio as fluctuations in sales generally exist due to inclusion of some profit. Some times, we may reduce the selling price to increase the sales, then Inventory turnover ratio is seriously effected due to fluctuations in sales.
Calcualtion of cost of sales on the basis of FIFO method is the best as earlier units which invove less cost during inflation. And average inventory will be more overvalued during inflation to reflect inflation. We can remove old units form the store in this method
d. It is the best to use Cost of goods sold as a numerator in calculating the Inventory turnover ratio, we cann't find much flctuations in cost of sales of inventory. If we observe the inventory turnover ratio of SUPERVALU, Inventory turnover ratio is more in case of where we have taken sales as the numerator, and this ratio is consistent if we take cost of sales as the numerator.
FIFO Method will give overvaluation of inventory during inflation,so that higher profits will be projected in financial statements, FIFO method of calculating cost of goods sold will give us lower cost as we issue earlier units, which ultimately lower cost of goods sold and gives higher profits. LIFO is only being used by corporates to show lesser profits, so that tax burden will be low