Question

.A company using the conventional retail method has the following information for the current year's operations:

	Cost					Retail
Beginning inventory	$	100,000					$	150,000
Purchases		500,000						800,000
Net markups								85,000
Net markdowns								35,000
Net sales								750,000

Management calculates the cost-to-retail percentage as 60%, equal to cost of $600,000 ($100,000 + $500,000) divided by retail of $1,000,000 ($150,000 + $800,000 + $85,000

– $35,000). Which of the following statements is correct?

A) The cost-to-retail percentage should be calculated as cost of $600,000 divided by retail of $750,000 (Net sales).

B) The retail amount should be $1,035,000, excluding net markdowns.

C) The cost and retail amounts should not include beginning inventory of $100,000 and $150,000, respectively.

D) The retail amount should be $950,000, excluding net markups and net markdowns.

Answer 1

Answer : option B

The Retail amount Should be $1,035,000 Excluding Net markdowns.

Because,

Cost value = beginning inventory + purchases = 100000+ 500000 = 600000

Retail value = beginning inventory + purhases + Net markups = 150000 + 800000 + 85000 = 1,035,000

Cost to retail percentage = (600,000 / 1,035,000)*100 = 58%

while finding the cost to retail percentage we must exclude net markdowns (must not consider net markdown value ) from the retail amounts then accurate percentage can be found.