Headquartered in Toronto, Indigo Books & Music Inc. is Canada?s largest book retailer. The following selected information is from the consolidated financial statements for Indigo Books & Music Inc. for the fiscal periods ended April 1, 2017 and April 2, 2016 (in thousands):

Additional information from the company?s annual report:

1. Inventories are valued at the lower of cost, determined using a moving weighted average cost formula, and market, being net realizable value.

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. 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 writedowns as a result of net realizable value lower than cost was $9.0 million in 2017 ($10.1 million in 2016), and there were no reversals of inventory writedowns that were recognized in 2017 or 2016. The amount of inventory at April 1, 2017, with net realizable value equal to cost was $2.8 million ($1.5 million at April 2, 2016).

Instructions

a. Calculate the company?s inventory turnover and days sales in inventory ratios for 2017 and 2016. Comment on whether Indigo?s management of its inventory improved or weakened in 2017.

b. Does Indigo follow the lower of cost and net realizable value rule? Did the application of this rule have any effect on 2017 results? Explain.

c. Indigo uses the moving weighted 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.

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2017 2016 2015 Cost of sales (cost of goods sold) Inventories $565,640 $551,194 $503,059 $231,576 $217,788 $208,395