Kellogg Company disclosed the following in its 1997 annual report: Inventories: Inventories are valued at the lower

Question:

Kellogg Company disclosed the following in its 1997 annual report:

Inventories: Inventories are valued at the lower of cost (principally average) or market.

Inventories: Inventories are valued at the lower of cost or market, using vari- Ous cost methods, and include the cost of raw materials, labor and overhead. The percentages of year end inventories valued using each of the methods is as follows:
December 31 1997 1996 Last-in, first-out (LIFO) 65% 53%
Average quarterly cost 30% 39% First-in, first-out (FIFO) 5% 8%
If the LIFO method of valuing these inventories was not used, total invento- ries would have been $8.6 million and $15.3 million higher than reported as of December 31, 1997 and 1996, respectively.
1997 1996 Cost of goods sold $2,564.9 $2,807.5 Inventories 256.1 274.9 Required: (1) Why do you think that Kellogg and Quaker Oats use different cost flow assumptions? Why do you think that Quaker Oats uses all three cost flow assumptions?
(2) Explain why a user might want to convert Quaker Oats’ inventory and’, cost of goods sold to non-LIFO amounts. ‘
(3) Compute the amounts of Quaker Oats’ beginning and ending inventories for 1997 and its 1997 cost of goods sold under a non-LIFO method.
(4) Compute Quaker Oats’ inventory turnover ratio for 1997 using

(a) the LIFO amounts and

(b) the non-LIFO amounts.
(5) What is the cumulative effect on Quaker Oats’ cost of goods sold of using LIFO?

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question

Accounting Information For Business Decisions

ISBN: 9780030224294

1st Edition

Authors: Billie Cunningham, Loren A. Nikolai, John Bazley

Question Posted: