Question

Target Corporation prepares its financial statements according to U.S. GAAP. Target's financial statements and disclosure notes for the year ended January 30, 2016, are available in Connect. This material is also available under the Investor Relations link at the company's website
Required:
a. What inventory method(s) does Target use to value its inventories?
b. In addition to the purchase price, what additional expenditures does the company include in the initial cost of merchandise?
c. Calculate the gross profit ratio and the inventory turnover ratio for the fiscal year ended January 30, 2016. Compare Target's ratios with the industry averages of 24.5% and 7.1 times.

Answer 1

Answer:

Gross profit ratio  = 29.5%

Inventory turnover ratio = 6.16 times

Explanation:

(a) Target uses the retail inventory method to account for the majority of it's inventory and the related cost of sales. in this method, inventory is stated at cost using the last in first out (LIFO) method as determined by applying a cost to retail ratio to each merchandise groupings ending retail value.

(b) The cost of inventory includes

1. The amount T pays to it's supplier to acquire inventory.

2. freight cost incurred in connection with the delivery of products to it's distribution centres and store.

3. Import cost reduced by vendor income and cash discounts.

(c) Gross profit ratio = 21788/73785

                                 = 29.5%

Inventory turnover ratio = 51997/(8601+8282)/2

                                        = 6.16 times