Assignment
1. In your own words describe the inventory turnover ratio and days in inventory calculation.
2. Why are turnover ratio and days in inventory calculations important to merchandising companies?
3. What are the three different inventory cost flow assumptions commonly used in commerce today and allowed by generally accepted accounting principles?
4. Pick one of the 3 inventory cost flow assumptions and describe in detail how it works.
5. How does your company, or a company you are familiar with, determine what cost flow assumption it should use?
6. How do the three inventory cost flow assumptions compare when reporting profit in the income statement and inventory on the balance sheet in a period of rising prices?
7. Describe the lower of cost or market inventory valuation method and why it is used.
8. How does this follow the convention in conservatism in accounting?