Headquartered in Toronto, Indigo Books & Music Inc. (TSX: IDG) is Canada's largest book retailer and the third largest in North America. Th e following information was taken from the management discussion and analysis section of the company's March 31, 2012, annual report (in thousands):

____________________________         ________2012                2011                2010

Cost of sales (cost of goods sold)………..$600,400….....$585,700……$538,500

Inventories………………………............……….$229,706……..$232,694…...$224,406

Additional information from the company's annual report:

1. Inventories are valued at the lower of cost, determined using a moving average cost formula, and market, being net realizable value. Under this method, inventory is recorded at the level of the individual article (stock keeping unit or SKU).

2. Costs include all direct and reasonable expenditures that are incurred in bringing inventories to their present location and condition. Vendor rebates are recorded as a reduction in the price of the products and corresponding inventory is recorded net of vendor rebates.

3. The average cost of an article is continually updated based on the cost of each purchase recorded in inventory. When the company permanently reduces the retail price of an item, there is a corresponding reduction in inventory recognized in the period if the markdown incurred brings the retail price below the cost of the item.

4. The amount of inventory write downs as a result of net realizable value lower than cost was $10.3 million in 2012 ($7.3 million in fiscal 2011), and there were no reversals of inventory write downs that were recognized in 2012 or in prior periods. The amount of inventory at March 31, 2012 with net realizable value equal to cost was $1.7 million ($2.3 million at March 31, 2011).

Instructions

(a) Calculate the company's inventory turnover and days sales in inventory ratios for 2012 and 2011. Comment on whether Indigo's management of its inventory improved or weakened in fiscal 2012.

(b) Does Indigo follow the lower of cost or net realizable value rule? Did the application of this rule have any effect on 2012 results? Explain.

(c) Indigo uses the average cost formula to account for its inventories. A major competitor, Amazon.com, Inc., uses the FIFO cost formula to account for its inventories. What difficulties would this create in comparing Indigo's financial results with those of Amazon.com? Explain.