Task: KW Steel Corp. uses the LIFO method of inventory valuation. Waretown Steel, KW's major competitor, instead uses the FIFO method. The following are excerpts from each company's 2011 financial statements:
|
|
|
KW Steel Corp. |
|
Waretown Steel |
| ($ in millions) |
|
2011 |
2010 |
|
2011 |
2010 |
| Balance sheet inventories |
797.6 |
692.7 |
|
708.2 |
688.6 |
| LIFO reserve |
|
378 |
334.9 |
|
|
|
|
|
|
|
|
|
|
|
| Sales |
|
|
4284.8 |
4029.7 |
|
3584.2 |
3355.8 |
| Cost of goods sold |
|
3427.8 |
3226.5 |
|
2724 |
2617.5 |
Question 1. Compute each company's 2011 gross margin percentage and inventory turnover using cost of goods sold ads reported by each company. (Round answers to one decimal place.) For each ratio, how does KW steel compare to Waretown Steel?
Question 2. Restate KW's cost of goods sold and inventory balances to the FIFO basis. On the basis of its adjusted data, recompute KW's gross margin percentage and inventory turnover. Explain how the revised figures alter your earlier comparisons.