Reference no: EM132476886

Point 1: Don Facundo Bacardy Maso founded the original Bacardi® rum business in Cuba in 1862. The following information is excerpted from Bacardi Corporation's annual report for the year ended December 31, Year 2. Bacardi's effective tax rate was 17% in Year 2.

Point 2: The company follows the last-in, first-out (LIFO) method of determining inventory cost. The LIFO method is considered by management to be preferable because it more closely matches current costs with current revenues in periods of price level changes. Under this method, current costs are charged to costs of sales for the year.

Point 3: In Year 2, LIFO liquidation was caused primarily by a substantial reduction during the year in [the inventory of] molasses (the major raw material). This LIFO liquidation, which resulted in cost of products sold being charged with higher inventory costs from prior years, caused a decrease in Year 2 net income of approximately $1,400,000 or $0.14 per share.

Point 4: LIFO inventories at December 31, Year 2 and Year 1 were $51,892,000 and $53,812,000, respectively, which is approximately $700,000 and $20,800,000 less than replacement cost at those dates.

Point 5: In accordance with generally recognized trade practices, inventories of distilled spirits in bonded aging warehouses have been included in current assets, although the normal aging period is usually from one to three years.

Ending inventories consist of the following:

($ in thousands)                                        Year 1                                Year 2

Finished goods                                    $2,684                            $2,420

Aging rum in bond                               40,285                               39,921

Raw materials and supplies                    8,923                            11,471

                                                      $51,892                           $53,812

• Cost of goods sold and net income (after tax) during Year 2 were $65,374,000 and $45,568,000, respectively.

Required:

Question 1: Compute the cost of goods manufactured (fully aged rum) during Year 2. Without using the LIFO reserve information, compute the finished goods inventory turnover (the number of days from inventory completion until its sale) and the work-in-process inventory turnover (the number of days the inventory is in the production cycle). (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Question 2: On the basis of available information, estimate Bacardi's net income if the company had used FIFO during Year 2. (Enter your answers in thousands of dollars.)

Question 3: Using all available information, compute a total inventory turnover measure (expressed in number of days). (Do not round intermediate calculations. Round your answer to 1 decimal place.)