Costing method for the material component of raw materials

Assignment Help Financial Accounting
Reference no: EM13746984

In its annual report for the year ended January 31, 2011, Virco Manufacturing Corporation, a producer of school desks and other furniture, provided the following information regarding a change in inventory method (in part):

Change in Accounting Principle

On January 31, 2011, we elected to change our costing method for the material component of raw materials, work in process, and finished goods inventory to the lower of cost or market using the first-in first-out (“FIFO”) method, from the lower of cost or market using the last-in first out (“LIFO”) method. The labor and overhead components of inventory have historically been valued on a FIFO basis. We believe that the FIFO method for the material component of inventory is preferable as it conforms the inventory costing methods for all components of inventory into a single costing method and better reflects current acquisition costs of those inventories on our consolidated balance sheets. Additionally, presentation of inventory at FIFO aligns the financial reporting with our borrowing base under our line of credit (see Note 3 for further discussion of the line of credit). Further, this change will promote greater comparability with companies that have adopted International Financial Reporting Standards, … In accordance with FASB ASC Topic 250, Accounting Changes and Error Corrections, all prior periods presented have been adjusted to apply the new accounting method retrospectively.

The retroactive effect of the change in our inventory costing method, including the indirect effect of such change, increased the February 1, 2008, opening retained earnings balance by $4.1 million, and increased our inventory and retained earnings balances by $8.5 million and $5.4 million as of January 31, 2009, by $6.9 million and $4.3 million as of January 31, 2010, and by $7.6 million and $4.7 million as of January 31, 2011, respectively. In addition the change in our inventory costing method, including the indirect effect of such change, increased (decreased) net income by $1.3, $(1.0) and $0.4 million for the years ending January 31, 2009, 2010 and 2011, respectively.

Required

1. Why does GAAP require Virco to retrospectively adjust prior years' financial statements for this type of accounting change?

2. Assuming that the quantity of inventory remained stable during the previous two years, did the cost of Virco's inventory move up or down during that year?

3. Why does the change “promote greater comparability with companies that have adopted International Financial Reporting Standards”?

Reference no: EM13746984

Questions Cloud

Evaluation of the new organization : Propose and describe two graphs and/or charts that you might find useful to prepare in the evaluation of the new organization. Summarize the purpose of each graph and the information that would be presented. Attach a sample to your response
Demonstrate selected perceptions : Students will choose a company of their liking and use any of the 2 (qualitative or quantitative) research and analysis methods to demonstrate selected perceptions (approved by the faculty) of the company. This project requires you to research, re..
Identify a potential aspect of the project : Given the purpose of the project and 6-month timeframe, devise a project plan, with objectives, activities, time-scales and deliverables, for your project.
Create a market analysis of salary levels : Create a market analysis of salary levels of the software analysts. A linear correlation has been found between the number of trouble calls taken by software analysts and their salaries
Costing method for the material component of raw materials : On January 31, 2011, we elected to change our costing method for the material component of raw materials, work in process, and finished goods inventory to the lower of cost or market using the first-in first-out (“FIFO”) method, from the lower of cos..
Hypertonic or hypotoni : Hypertonic, or hypotonic? Would water move into or out of the red blood cells (RBC) to maintain equilibrium?
Write a book review of an american soldier in world war i : write a book review of An American Soldier in World War I. In the Book Review, you must identify the authors' thesis and evaluate how effectively theysupport it.
Genes are transferred from the parent organisms : During reproduction, genes are transferred from the parent organisms to the offspring, whether they are tomato seeds or baby walruses. Scientists have learned how to isolate genes and insert them into cells without using the parents. Genes may now be..
What is the selling price that maximizes revenue : Suppose that the price at which q thousand flash drives can be sold is given by the demand equation. Find the level of production (to the nearest flash drive) that maximizes revenue. What is the selling price (per flash drive) that maximizes revenue?..

Reviews

Write a Review

Financial Accounting Questions & Answers

  Schedule of cost of goods manufactured income statement

Schedule of cost of goods manufactured, income statement.

  Prepare the journal entries necessary to restore

The company collects $5,000 subsequently on a specific account that had previously been determined to be uncollectible in the question above. Prepare the journal entry(ies) necessary to restore the account and record the cash collection

  Estimate the current value of the company bonds

On the basis of this information estimate the current value of the Company bonds, the Preference shares, and the Ordinary shares.

  Compute the variance analysisnbspof

compute the variance analysisnbspof directnbspmaterials.information on rex co.s direct material costs for may

  Discuss reasons a consulting firm might use a normal cost

Discuss the reasons a consulting firm might use a normal costing system rather than an actual costing system. What might be some reasons for the firm to change from a one-pool to a multiple-pool allocation concept?

  Williams music store reported cost of goods sold

williams music store reported cost of goods sold as

  Harley would realize by accepting the special order

A foreign wholesaler offers to buy3,360units at $25each. Harley will incur special shipping costs of $1per unit. Assuming that Harley has excess operating capacity.

  Illustrate what is allen break-even point in units

At that level Allen Company expects to sell 3,000 units next year. Illustrate what is Allen’s break-even point in units if it purchases the new equipment?

  Multiple choice questions on accounts receivables and bad

multiple choice questions on accounts receivables and bad debts1.on november 10 of the current year flores mills sold

  Question please complete the needed federal individual

question please complete the needed federal individual income tax return forms for the subsequent taxpayer. unless

  Financial analysis- planning and budgeting

While there is no saving in the cost, the US Treasury rate can be used; however, there are not many ways that DCF can be used even though it is useful in make decision where investments are concerned.

  What is difference between a settlement and a curtailment

Determine the current year's overhead application rate

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd