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Copy of Callaway Golf Company
Transcript of Copy of Callaway Golf Company
The inventory turnover ratio measures how efficiently Callaway manages its inventory. The ratio is defined as:
Inventory Turnover Ratio = Cost of Sales /
Average Inventories, net
Average Inventories = Beginning Inv. + Ending Inv. / 2
Cost of Sales $528,043 $585897
Average Inventories $237,613 $222,402
Inventory turnover 2.22 times 2.63 times
Inventory holding period = 365 / Inventory turnover ratio
2013 Inventory holding period = 365 / 2.22 = 164.41 days
2012 Inventory holding period = 365 / 2.63 = 138.78 days
Reserve for obsolete inventory
Assuming that obsolete inventory relates entirely to finished goods, calculate the percentage this reserve represents from the gross finished products inventory.
Callaway Golf Company (ELY)
T - Accounts
T - Accounts help visualize the flow of inventory & therefore the flow of cost.
The case provides us the following assumptions:
The only activity in "Accounts Payable" is for raw materials purchses & payments
$126,000 ( in thousands) of manufacturing salaries and overhead was debited to "Work in Process" all other activity in the work in process account is from raw materials transfer and transfer of completed products to "Finished Goods"
The reserve for obsolete inventory is included with the finished goods balance
Case Presentation : Callaway Golf Company
Sue H. Estrada
Sporting goods company that designs, manufactures, markets and sells golf equipment and golf accessories in more than 70 countries worldwide.
In February 1992, Callaway Golf went public on the New York Stock Exchange with a market capitalization of $250 million.
By late 1997, it reached a market capitalization of over $3.0 billion.
Callaway Golf was the biggest manufacturer by sales of golf equipment in the world in 2009.
As of previous market close, Callaway Golf was trading at $7.56 a share.
Based in Carlsbad, California , founded in 1982 by Ely Reeves Callaway Jr.
In 2012, 6.05%
In 2013, 5.70%
How we get gross finished products
What does this ratio tell us?
What could explain the change on this percentage between 2012 and 2013?
T - Accounts
Golf Companies Comparison in Inventory Management Efficiency
To interpret the allowance for obsolete inventory.
Trace product cost flows from raw materials to finished goods inventory.
Calculate and analyze financial statement ratios that are related to inventory.
What type of costs do you expect to be in the raw materials inventory? the work-in process inventory and the finished goods inventory?
Raw materials include costs associated with the materials needed to manufacture Callaway's products i.e. golf clubs and golf balls. The costs for shipping are part of these costs.
Work-in process includes the costs of the raw materials once they are in the manufacturing stage. Manufacturing and allocation costs are also included.
Finished goods include the costs for the completed products that are ready for sale.
What are the inventories
They are the net of an estimated allowance for obsolete or unmarketable inventory.
Balance, December 31, 2012 $10,800
Write-offs, disposals and other ($11,628)
Balance, December 31, 2013 $12,520
Where does this account appear on Callaway's financial statements?
This account is a contra asset that appears on the balance sheet, and it goes against gross inventories.
What is the gross amount of inventory at the end of 2013? 2012?
What portion of the reserve for obsolete inventory do you think is attributable to each of the three types of inventory held by Callaway?
obsolete inventory allowance is related to raw materials and finished goods inventories. It is not usual for obsolete inventory to be found in work-in process.
Obsolete Inventory 2013
Recreate the journal entries Callaway prepared to record the activity for obsolete inventory account during 2013.
Cost of sales $13,348
Reserve for obsolete inventory $13,348
Reserve for obsolete inventory $11,628