The following information is available for PepsiCo, Inc. (in U.S. millions):
In the notes to its financial statements, PepsiCo disclosed that it uses the FIFO and average cost formulas to determine the cost of 90% of its inventory, and another method that is not materially different from FIFO to account for the remainder.
The industry averages for the inventory turnover, days in inventory, and current ratios are as follows:
Instructions
(a) Calculate PepsiCo’s inventory turnover, days in inventory, and current ratios for 2010 and 2009. Comment on the company’s liquidity over the two years, and in comparison with the industry.
(b) What might be the reason that PepsiCo uses more than one cost formula to determine the cost of its inventory?
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