Question

Smith-Kline Company maintains inventory records at selling prices as well as at cost. For 2018, the records indicate the following data:

	($ in 000s)
	Cost			Retail
Beginning inventory	$	86		$	131
Purchases		677			1,012
Freight-in on purchases		36
Purchase returns		1			2
Net markups					4
Net markdowns					8
Net sales					922

Required:
Use the retail method to approximate cost of ending inventory in each of the following ways: (Enter your answers in thousands. Round your cost-to-retail percentage calculation and final answers to 2 decimal places.)

Answer 1

Solution:-

Ending inventory	($ in 000s)
1.	Average cost	150.89
2.	Average (LCM) cost	149.83

Explanation:-

	($ in 000s)
	Cost	retail
Beginning inventory	86	131
Purchases	677	1,012
Freight-in on purchases	36
Purchase return	(1)	(2)
Net markups		4
Net markdowns		(8)
Goods availabel for sale	798	1,137
Cost-to-retail percentages:
Average cost ratio 798 / 1,137	70.18%
Average LCM cost ratio 798 /(1,137 + 8)	69.69%
Deduct Net sales		(922)
Ending inventory at retail sales price		215
At average cost (215 * 70.18%)	150.89
At average (LCM) (215 * 69.69%)	149.83