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Northeast Beams, Inc
Northeast Beams, Inc. uses the LIFO method to determine the cost of its inventories. It reported LIFO reserves of $20 million and $30 million at December 31, 2017 and 2018, respectively. Northeast Beams also reported LIFO inventories of $80 million and $90 million at December 31, 2017 and 2018, respectively. Northeast Beams' reported gross margin percentage (based on LIFO COGS) was 30% on sales of $600 million for the year ended December 31, 2018. If Northeast Beams, Inc. had used FIFO, its inventory turnover ratio for the year 2018 would have been (please round to the nearest two decimal place): Note that: Gross margin percentage = (Sales - COGS) / Sales Inventory turnover ratio = COGS / average inventory COGS means Costs of goods sold h a. 2.12 O b.3.73 O c.4.94 O d. 5.15 O e. None of the above
Expert Solution
lifo COGS= sales*(1-profit margin)= 600*.7=420
fifo cogs=lifo cogs-(ending lifo reserve-begining lifo reserve)= 420-(30-20)= 410;
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Average lifo inventory=(80+90)/2=85 ; avg lifo reserve= (20+30)/2=25
fifo inventory=avg lifo invntory+avg lifo reserve
fifo inventory=85+25=110
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fifo inventory turnover= fifo cogs/fifo avg inventory= 410/110= 3.73 (option B)
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