Question

The records for the Clothing Department of Teal’s Discount Store are summarized below for the month of January.

Inventory, January 1: at retail $24,600; at cost $16,600

Purchases in January: at retail $136,900; at cost $71,358

Freight-in: $7,100

Purchase returns: at retail $3,000; at cost $2,200

Transfers in from suburban branch: at retail $12,800; at cost $9,400

Net markups: $8,100

Net markdowns: $4,000

Inventory losses due to normal breakage, etc.: at retail $300

Sales revenue at retail: $96,200

Sales returns: $2,500

Part 1

Compute the inventory for this department as of January 31, at retail prices.

Ending inventory at retail

$

Part 2

Compute the ending inventory using lower-of-average-cost-or-market. (Round ratios for computational purposes to 0 decimal places, e.g 78% and final answer to 0 decimal places, e.g. 28,987.)

Ending inventory at lower-of-average-cost-or-market

$

  

  

Answer 1

Part 1:

	Cost		Retail
Beginning Inventory	16,600		24,600
Purchases	71,358		136,900
Freight-in	7,100
Purchase returns	(2,200)		(3,000)
Transfers in from the suburban branch	9,400		12,800
Total	102,258		171,300
Net markups			8,100
Total			179,400
Net markdowns			(4,000)
Total			175,400
Sales revenue		96,200
Sales returns		(2,500)	(93,700)
Inventory losses due to normal breakage			(300)
Ending Inventory in Retail			81,400

Ending Inventory in Retail is $81,400.

.

Part 2:

Calculate the Cost to retail ratio as follows

Cost-to-retail ratio: = 102,258 / 179,400 = 57%

Compute the ending inventory using lower-of-average-cost-or-market

Ending Inventory: = Ending Inventory at Retail x 57% = 81,400 x 57% = 46,398

Ending Inventory is $46,398.