Question

Use this information for the following three questions. KW Steel Corp. uses the LIFO method of...

Use this information for the following three questions.

KW Steel Corp. uses the LIFO method of inventory valuation. Waretown Steel, KW’s major competitor, instead uses the FIFO method. The following are excerpts from each company’s 2014 and 2013 financial statements:

KW Steel Corp.

Waretown Steel

($ in millions)

2014

2013

2014

2013

Balance sheet inventories

797.6

692.7

708.2

688.6

LIFO reserve

378.0

334.9

Sales

4,284.8

4,029.7

3,584.2

3,355.8

Cost of goods sold

3,427.8

3,226.5

2,724.0

2,617.5

A- Calculate inventory turnover for 2014 for KW Steel

B-Calculate inventory turnover for 2014 for Warehouse Steel

C-Re-calculate inventory turnover for 2014 for KW Steel if they used FIFO

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Answer #1

A

Inventory Turnover = COGS / Average Inventory = 3,427.8 / (797.6 + 692.7) / 2 = 3,427.8 / 745.15 = 4.6 times

B.

Inventory Turnover = COGS / Average Inventory =3,584.2 / (708.2 + 688.6) / 2 = 3,584.2 / 698.4 = 3.9 times

C.

Increase in KW's LIFO reserve = 378 - 334.9 = 43.1
COGS (FIFO) = 3,427.8 - 43.1 = 3,384.7

Inventory (LIFO) = 797.6 and 692.7
LIFO Reserve = 378 and 334.9
Inventory (FIFO) = (797.6 + 378) and (692.7 + 334.9) = 1,175.6 and 1,027.6

Inventory turnover = 3,384.7 / (1,175.6 + 1,027.6) / 2 = 3.1 times

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