Please answer questions A-D using the P&G\'s most recent 10k USING YOUR JUDGMENT
ID: 2581838 • Letter: P
Question
Please answer questions A-D using the P&G's most recent 10kUSING YOUR JUDGMENT FINANCIAL REPORTING Financial Reporting Problem G The Procter & Gamble Company (P&G;) The financial statements of P&G; are presented in Appendix 5B. The company's complete annual report, including the notes to the financial statements, can be accessed at the book's companion website, www. wiley.com/college/kieso. Instructions Refer to P&G;'s financial statements and the accompanying notes to answer the following questions. (a) How does P&G; value its inventories? Which inventory costing method does P&G; use as a basis for reporting its inventories? How does P&G; report its inventories in the balance sheet? In the notes to its financial statements, what three descriptions are used to classify its inventories? What costs does P&G; include in Inventory and Cost of Products Sold? What was P&G;'s inventory turnover in 2011? What is its gross profit percentage? Evaluate P&G;'s in- ventory turnover and its gross profit percentage. (b) (c) (d)
Explanation / Answer
Inventories are valued at the lower of cost or market value.
Inventory costing method used to report:
Product-related inventories - First-in, first-out method.
The cost of spare part inventories - Average-cost method.
2) P&G’s reporting of Inventory in Balance sheet (2017):
INVENTORIES 2017 2016
Materials and supplies 1,308 1,188
Work in process 529 563
Finished goods 2,787 2,965
Total inventories 4,624 4,716
As can be seen above, the three descriptions used to classify inventory are;
3) What costs does P&G include in Inventory & Cost of goods sold?
In Cost of goods sold:
Costs included are direct materials & supplies consumed, manufacturing labour, depreciation expense and direct overhead expense necessary to acquire and convert the purchased materials and supplies into finished product. It also includes the cost to distribute to customers, inbound freight costs, internal transfer costs, warehousing costs and other shipping and handling charges.
Costs included In Inventory:
Aggregated amount of unprocessed materials to be used in manufacturing and supplies that will be consumed
raw materials, labor and factory overhead costs. (percentage completion is used by estimates)
4) Inventory Turnover in 2017 is 6.97
The inventory turnover ratio has improved from 5.34 times in 2008 to 6.97 times in 2017. It shows its efficiency in converting inventory to sales.
Gross profit % in 2017: (32523/65058) = 50%
The Gross profit ratio has decreased marginally from 51.64% in 2008 to 50% in 2017, due to reduced sales volume and increased competition.