Most companies include information about inventory in the first note to the financial statement, "Summary of Significant Accounting Policies." This note usually tells the reader which method the company uses to value the cost of its ending inventory.

Instructions:

1. Using Note 1, beginning on page B-10 of Appendix B in this textbook, locate the paragraph titled "Merchandise Inventories." List the method Costco primarily uses to value the cost of its U.S. merchandise inventory and the method Costco primarily uses to value the cost of its foreign merchandise inventory.

2. Calculate Costco's merchandise inventory turnover ratio and average number of days' sales in merchandise inventory as of September 3, 2006. Use the information on the Five-Year Operating and Financial Highlights on pages B-2 and B-3 and the Consolidated Balance Sheets on page B-6.

3. Go to Costco's web site (www.costco.com) and locate the financial statements for the most current year available. (Look for "Investor Relations" or a similar link.) Calculate Costco's merchandise inventory turnover ratio and aver- age number of days' sales in merchandise inventory for the current year.

4. Did these measures improve or worsen from 2005 to the current year?

Data from pages B-2 and B-3

Data from page B-6 of Appendix B

Data from page B-10 of Appendix B

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Percent Increase Number of Warehouses Warehouses in Operation FINANCIAL HIGHLIGHTS Net Sales 475 80,000 58,000 (474 at 13006) 56,000 458 450 $4,000 52.000 433 50,000 425 417 $ Millions 48,000 47,149 46,000 44,000 42,000 41,605 400 397 40,000 37 995 38.000 375 374 2002 Oth 12% 2003 2004 2005 At Fiscal Year End Comparable Sales Growth 2006 18 10% 10% 17 8% 4% 2% 6% % 5% 0% 2002 2003 2004 2005 Fiscal Year 2006 Milions 14 16 14.597 2000 51.879 Net Income 1,150 58.963 1,100 1.063 1,060 1.000 960 2003 2004 2005 2006 Fecal Year Gold Star Members 14964 15.018 16.233 Membership S $ Millions 000 850 800 750 721 700 700 650 2002 2003 2004 Fiscal Year Business Members 54 17:338 52 Millions 50 48 4636 48 4.476 44 0 2002 2003 2004 2005 2006 2002 2009 Fiscal Yar 4810 5.000 2005 2006 2004 2005 2006 Fiscal Year 5.214 1,100