Response to the following problem:
Laura Badora Company has been using LIFO inventory. The company is required to disclose the replacement cost of its inventory and the replacement cost of its cost of goods sold on its annual statements. Selected data for the year ended 2011 are as follows:
Ending accounts receivable, less allowance for doubtful accounts of $25,000 $ 480,000
Ending inventory, LIFO (estimated replacement $900,000) 570,000
Net sales 3,650,000
Cost of goods sold (estimated replacement cost $3,150,000) 2,850,000
Required:
a. Compute the days' sales in receivables.
b. Compute the days' sales in inventory, using the cost figure.
c. Compute the days' sales in inventory, using the replacement cost for the inventory and the cost of goods sold.
d. Should replacement cost of inventory and cost of goods sold be used, when possible, when computing days' sales in inventory? Discuss.