The inventory footnote from The Dow Chemical Company's first quarter 2019 SEC report follows. The company...

 

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The inventory footnote from The Dow Chemical Company's first quarter 2019 SEC report follows. The company also reports cost of goods sold for Ql of 2019 of $10,707 million. Inventories, in millions Mar. 31, 2019 Dec. 31, 2018 Finished goods.. Work in process Raw materials... Supplies.... $5,703 $5,640 2,214 2,239 940 941 891 880 Total... $9,773 $9,675 Adjustment of inventories to a LIFO basis (265) Total inventories.... (415) $9,260 $9,508 Required a. What inventory costing method does Dow Chemical use? As of QI of 2019, what is the effect on cumulative pretax income and cash flow of using this inventory costing method? (Assume a 30% average cumulative tax rate.) What is the effect on Q1 of 2019 pretax income and cash flow of using this inventory costing method, assuming a 21% tax rate? b. Compute inventory tumover and average inventory days outstanding for Ql of 2019. (Hint: How do we adjust the ratio for the number of days in a quarter instead of a year?) Comment on the level of these two ratios. Is the level what we expected? c. Determine the FIFO values for inventories and cost of goods sold for QI of 2019. Recompute inven- tory turnover and DIO. Compare the ratios to those from part b. Which set of ratios would provide more useful analysis? d. Explain why a reduction in the LIFO reserve increased income in QI of 2019. The inventory footnote from The Dow Chemical Company's first quarter 2019 SEC report follows. The company also reports cost of goods sold for Ql of 2019 of $10,707 million. Inventories, in millions Mar. 31, 2019 Dec. 31, 2018 Finished goods.. Work in process Raw materials... Supplies.... $5,703 $5,640 2,214 2,239 940 941 891 880 Total... $9,773 $9,675 Adjustment of inventories to a LIFO basis (265) Total inventories.... (415) $9,260 $9,508 Required a. What inventory costing method does Dow Chemical use? As of QI of 2019, what is the effect on cumulative pretax income and cash flow of using this inventory costing method? (Assume a 30% average cumulative tax rate.) What is the effect on Q1 of 2019 pretax income and cash flow of using this inventory costing method, assuming a 21% tax rate? b. Compute inventory tumover and average inventory days outstanding for Ql of 2019. (Hint: How do we adjust the ratio for the number of days in a quarter instead of a year?) Comment on the level of these two ratios. Is the level what we expected? c. Determine the FIFO values for inventories and cost of goods sold for QI of 2019. Recompute inven- tory turnover and DIO. Compare the ratios to those from part b. Which set of ratios would provide more useful analysis? d. Explain why a reduction in the LIFO reserve increased income in QI of 2019.

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