Itâs Good, YâAll! is a Texas-based company that operates a largechain of restaurants. The following information is available forthe company (in thousands):
Category 2007 2008 2009 Net Sales $400,577 $517,616 $640,898 Cost of Goods Sold $130,885 $171,708 $215,071 Net Income $33,943 $46,652 $57,497 Ending Inventory $23,192 $28,426 $41,989
Compute the companyâs inventory turnover ratio and age ofinventory for 2007 through 2009. Beginning inventory for 2007 was$15,746,000.
Comment on the ratios computed in Part A. Are there any definitetrends in theses ratios? If so, are these trends favorable orunfavorable? Explain.
Why do decision makers pay close attention to the age of aninventory statistic for companies in the restaurant industry?
Itâs Good, YâAll! is a Texas-based company that operates a largechain of restaurants. The following information is available forthe company (in thousands):
| Category | 2007 | 2008 | 2009 |
|---|---|---|---|
| Net Sales | $400,577 | $517,616 | $640,898 |
| Cost of Goods Sold | $130,885 | $171,708 | $215,071 |
| Net Income | $33,943 | $46,652 | $57,497 |
| Ending Inventory | $23,192 | $28,426 | $41,989 |
Compute the companyâs inventory turnover ratio and age ofinventory for 2007 through 2009. Beginning inventory for 2007 was$15,746,000.
Comment on the ratios computed in Part A. Are there any definitetrends in theses ratios? If so, are these trends favorable orunfavorable? Explain.
Why do decision makers pay close attention to the age of aninventory statistic for companies in the restaurant industry?
Related questions
1. Claremont Corp has the following inventory balances for 2009:beginning, $468,000; ending, $444,000. The companyâs cost of goodssold for the year was $4,370,400.
What was Claremont Corp.âs average inventory for 2009?
What is the companyâs inventory turnover ratio?
Calculate the average age of inventory for Claremont Corp.
Assume that Claremont Corp is a retail toy company, and itsfiscal year-end is December 31. Would Claremontâs inventory be atan annual high or low at the end of the year? In this situation,would the inventory turnover ratio provide valid information to adecision maker? Why or why not?
Given the information in Part D, how might you obtain a betterindication of the average amount of inventory that Claremont Corphand on-hand during the year?
2. Itâs Good, YâAll! is a Texas-based company that operates alarge chain of restaurants. The following information is availablefor the company (in thousands):
| Category | 2007 | 2008 | 2009 |
|---|---|---|---|
| Net Sales | $400,577 | $517,616 | $640,898 |
| Cost of Goods Sold | $130,885 | $171,708 | $215,071 |
| Net Income | $33,943 | $46,652 | $57,497 |
| Ending Inventory | $23,192 | $28,426 | $41,989 |
Compute the companyâs inventory turnover ratio and age ofinventory for 2007 through 2009. Beginning inventory for 2007 was$15,746,000.
Comment on the ratios computed in Part A. Are there any definitetrends in theses ratios? If so, are these trends favorable orunfavorable? Explain.
Why do decision makers pay close attention to the age of aninventory statistic for companies in the restaurant industry?
3. Li Enterprises recently purchased new computer equipment forits company headquarters. The following is information regardingthe various cash expenditures related to the acquisition of thisequipment:
The invoice price of the equipment was $300,000, however, Liâsowner negotiated a 15% price reduction.
The equipment was shipped to Liâs headquarters FOB shippingpoint. The delivery cost was $2,750.
Li paid $1,870 to hire a computer consultant to install and testthe new equipment.
Supplies costing $135 were used in installing and testing theequipment.
The day following the installation of the equipment, one of Liâsemployees broke a USB port on the computer equipment. The companypaid $265 to have the port replaced.
Determine the acquisition cost of the computer equipment foraccounting purposes.
A computer purchased for several thousand dollars may havelittle resale value one year later because of technological changesin the computer industry. Given that the resale value of computersand computer equipment can decline rapidly, is historical cost theproper valuation basis to use for such assets? Defend youranswer.
