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Converting LIFO to FIFO

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KW Steel Corp. uses the LIFO method of inventory valuation. Waretown Steel, KW's major competitor, instead uses the FIFO method. See the attached.

1. Compute each company's 2011 gross margin percentage and inventory turnover using cost of goods sold ads reported by each company. (Round answers to one decimal place.) For each ratio, how does KW steel compare to Waretown Steel?

2. Restate KW's cost of goods sold and inventory balances to the FIFO basis. On the basis of its adjusted data, recompute KW's gross margin percentage and inventory turnover. Explain how the revised figures alter your earlier comparisons.

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This solution helps convert the LIFO method of inventory valuation with the FIFO method.

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KW Steel Corp. uses the LIFO method of inventory valuation. Waretown Steel, KW's major competitor, instead uses the FIFO method. The following are excerpts from each company's 2011 financial statements:

KW Steel Corp. Waretown Steel
($ in millions) 2011 2010 2011 2010
Balance sheet inventories 797.6 692.7 708.2 688.6
LIFO reserve 378 334.9

Sales 4284.8 4029.7 3584.2 3355.8
Cost of goods sold 3427.8 3226.5 2724 2617.5

1. Compute each company's 2011 gross margin ...

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