Taking it to the net btn 5 5 1 polaris manufactures

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Taking It to the Net — BTN 5-5 1. Polaris manufactures off-road vehicles such as all terrain vehicles (ATV) and snowmobiles, and on-road vehicles such as motorcycles. 2. Its summary of significant accounting policies (Note 1) reports: “Inventories are stated at the lower of cost (first-in, first-out method) or market.” 3. Its gross margin for 2009 is ($ thousands) Sales ................................................................... $1,565,887 Cost of sales ....................................................... (1,172,668 ) Gross margin ...................................................... $ 393,219 Gross margin ratio is: $393,219 / $1,565,887 = 0.251 or 25.1% Comment: Its gross margin ratio is slightly lower (less favorable) than the industry average gross margin ratio of 27%. 4. 2009 Inventory turnover* = $1,172,668 / [($179,315 + $222,312)/2] = 5.8 times 2009 Days’ sales in inventory* = ($179,315 / $1,172,668) x 365 = 56 days * $ thousands 5-62
Chapter 05 – Inventories and Cost of Sales Comment: Its inventory turnover is lower (less favorable) than the industry average turnover of 5.9. Similarly, its days’ sales in inventory is greater (less favorable) than the industry norm of 55 days. 5-63
Chapter 05 – Inventories and Cost of Sales Teamwork in Action — BTN 5-6 Concepts and procedures to illustrate in expert presentation: Specific Identification Expert: (a) and (b) Concept: Purchases are always recorded at the actual specific costs. The specific identification cost flow assumption requires units sold be assigned their actual cost. Total cost of goods sold is tallied based on these individual cost assignments. The new inventory balance is perpetually determined to be the amount after sales at actual cost is deducted. (a) and (b) Procedures: Date Goods Purchased Cost of Goods Sold Inventory Balance Jan. 1 50 @ $10 = $ 500 Jan.10 30 @ $10 = $ 300 20 @ $10 = $ 200 Jan.14 150 @ $12 = $1,800 20 @ $10 = $ 200 150 @ $12 = 1,800 $2,000 Feb.15 100 @ $ 12 = $1,200 20 @ $10 = $ 200 50 @ $12 = 600 $ 800 Apr.30 200 @ $15 = $3,000 20 @ $10 = $ 200 50 @ $12 = 600 200 @ $15 = 3,000 $3,800 Sept 26 300 @ $20 = $6,000 20 @ $10 = $ 200 50 @ $12 = 600 200 @ $15 = 3,000 300 @ $20 = 6,000 $9,800 Oct. 5 100 @ $ 15 = $1,500 250 @ $ 20 = $5,000 _____ 20 @ $10= $ 200 50 @ $12 = 600 100 @ $15 = 1,500 50 @ $20 = 1,000 $8,000 $3,300 5-64
Chapter 05 – Inventories and Cost of Sales Teamwork in Action (Continued) LIFO Expert: (a) and (b) Concept: Purchases are always recorded at actual costs. The LIFO cost flow assumption requires (i) units sold be assigned the most recent cost—total cost of goods sold is tallied based on these individual cost assignments, and (ii) that the inventory balance be perpetually determined to be the amount after goods sold (using the most recent costs) are deducted. (a) and (b) Procedures: Date Goods Purchased Cost of Goods Sold Inventory Balance Jan. 1 50 @ $10 = $ 500 Jan.10 30 @ $10 = $ 300 20 @ $10 = $ 200 Jan.14 150 @ $12 = $1,800 20 @ $10 = $ 200 150 @ $12 = 1,800 $ 2,000 Feb.15 100 @ $12 = $ 1,200 20 @ $10 = $ 200 50 @ $12 = 600 $ 800 Apr.30 200 @ $15 =$3,000 20 @ $10 = $ 200 50 @ $12 = 600 200 @ $15 = 3,000 $ 3,800 Sept 26 300 @ $20 = $6,000 20 @ $10 = $ 200 50 @ $12 = 600 200 @ $15 = 3,000 300 @ $20 = 6,000 $ 9,800 Oct. 5 300 @ $20 = $ 6,000 50 @ $15 = $ 750 ______ $ 8,250 20 @ $10 = $ 200 50 @ $12 = 600 150 @ $15 = 2,250 $ 3,050 5-65
Chapter 05 – Inventories and Cost of Sales Teamwork in Action (Continued) FIFO Expert: (a) and (b) Concept: Purchases are always recorded at actual costs. The FIFO cost flow assumption requires units sold be assigned the first (earliest) cost of purchases. Total cost of goods sold is tallied based on these individual cost assignments. The inventory balance is perpetually determined to be the amount after deducting goods sold using the earliest costs.

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