Question

Fashion Inc. estimates its quarterly inventory by the retail inventory method. The following data are available for the month ended July 31, 2020:

	Cost	Selling Price
Inventory, 1 July 2020	$362,000	$ 537,000
Markups		195,000
Markup cancellations		38,000
Markdowns		60,000
Markdown cancellations		23,000
Purchases	830,000	1,500,000
Purchase returns and allowances	16,000	25,000
Sales		1,680,000
Sales returns and allowances		80,000

Required:

Prepare a schedule to compute the estimated inventory at July 31, 2020.

Answer 1

Retail Inventory Method
	Cost	Retail
Inventory, January 1, 2020	$362,000	$537,000
Purchases (net)	$814,000	$1,475,000
	$1,176,000	$2,012,000
Add: Net markups		$157,000
Totals	$1,176,000	$2,169,000
Deduct: Net markdowns		$60,000
Sales price of goods available		$2,109,000
Deduct: Sales (net)		$1,600,000
Ending inventory at retail		$509,000
Cost-to-retail ratio	54.22%
($1,176,000/$2,169,000)
Ending inventory at cost	$275,980
($509,000 x 54.22%)