Mgmt 200 Spring 2011 Chapter 6

Mgmt 200 Spring 2011 Chapter 6 - Notes: Inventories and...

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Notes: Inventories and Cost of Goods Sold Chapter 6 Income Statement Format ABC Inc Income Statement for 2010 Net Sales $100,000 Cost of goods sold 60,000 Gross margin 40,000 Operating expenses 25,000 Operating income 15,000 Non-operating items 4,000 Income before tax 19,000 Income tax expense 7,600 Net income $ 11,400 Earnings per share (10,000 shares) $1.14 Gross Profit • Gross Profit (Gross Margin) = Net Sales – Cost of goods sold • Gross Profit percentage (rate) = Gross profit / Sales • Common size income statement
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Notes: Inventory Total Current Company Date assets assets Inventory Cash Wal-Mart 10/31/09 172,934 51,948 38,775 6,003 Caterpillar 9/30/09 60,838 26,223 6,815 4,188 ExxonMobi 9/30/09 229 307 57 324 12 585 12 623 ExxonMobil 229,307 57,324 12,585 12,623 Google 12/31/09 40,497 29,167 0 24,485 All numbers in millions of dollars. The first three companies use the LIFO method, although in Wal-Mart’s case this is approximately the same as FIFO. Wal-Mart measures the cost of inventory using the retail inventory method. Inventory Total Current Company Date assets assets Inventory Cash Wal-Mart 10/31/09 100.0% 30.0 22.4 3.5 Caterpillar 9/30/09 100.0% 43.1 11.2 6.9 ExxonMobil 9/30/09 100.0% 25.0 5.5 5.5 Google 12/31/09 100.0% 72.0 0.0 60.5 Common-size analysis (Total assets = 100%) Inventory Types of Inventory Merchandise Inventory Raw Materials, Work-in-process, Finished goods Other – Supplies, etc Inventory equation Cost-flow assumptions Perpetual vs. periodic inventory systems Costs included in inventory Lower of cost or market rule Inventory (ratio) analysis
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Notes: Inventory Equation (Cost of Goods Sold equation) Cost of goods sold = BI + Purchases – EI (This is the Inventory T-account) Costs IN = Costs OUT (both = Cost of goods available for sale) BI + Purchases = COGS + EI (allocation issue to asset and expense account) COGS when prices fluctuate 1. You start the month with $18 cash. 2. You purchase a DVD for $8. 3. Later in the month you purchase an identical DVD for $10 $10. 4. You sell one of the DVD’s for $12. 5. You end the month with $12 cash and one DVD.
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This note was uploaded on 02/27/2012 for the course MGMT 200 taught by Professor Greigg during the Spring '08 term at Purdue University-West Lafayette.

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Mgmt 200 Spring 2011 Chapter 6 - Notes: Inventories and...

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