Green Bay Cheese Company is considering changing inventory cost flow methods. Green Bays primary objective is to

Question:

Green Bay Cheese Company is considering changing inventory cost flow methods. Green Bay’s primary objective is to maximize profits. Currently, the firm uses weighted average cost. Data for 2011 are provided.

Beginning inventory (10,000 units) .......$ 14,500

Purchases

60,000 units at $1.50 each ..........$ 90,000

50,000 units at $1.60 each ..........80,000

70,000 units at $1.70 each ..........119,000

Sales

130,000 units at $3.00 each

Operating expenses were $120,000 and the company’s tax rate is 30%.

Requirements

1. Prepare the multistep income statement for 2011 using each of the following methods:

a. FIFO periodic

b. LIFO periodic

2. Which method provides the more current balance sheet inventory balance at December 31, 2011? Explain your answer.

3. Which method provides the more current cost of goods sold for the year ended December 31, 2011? Explain your answer.

4. Which method provides the better inventory turnover ratio for the year? Explain your answer.

5. In order to meet its goal, what is your recommendation to Green Bay Cheese Company? Explain your answer.

Inventory Turnover Ratio
Inventory Turnover RatioThe inventory turnover ratio is a ratio of cost of goods sold to its average inventory. It is measured in times with respect to the cost of goods sold in a year normally. Inventory Turnover Ratio FormulaWhere,... Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...