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ABC Company uses the retail inventory method to value its inventory for financial reporting purposes. The...

ABC Company uses the retail inventory method to value its inventory for financial reporting purposes. The company compiled the following cost and retail data for 20X1.

Cost Retail
Beginning Inventory 7,000,000

10,000,000
Purchases 12,800,000

15,000,000
Net Markups 2,000,000
Net Markdowns 1,000,000
Net Sales 12,000,000

1) If ABC wishes to approximate the average cost of its inventory, determine the best estimate.

2) If ABC wishes to approximate lower-of-cost-or-market, determine the best estimate.

Business   Accounting   
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Answer #1
Particulars Cost Retail
Beginning Inventory 7000000 10000000
Purchases 12800000 15000000
Markups 2000000
TOTAL 19800000 27000000
Cost to Retail ratio =Cost/Retail 0.73
Retail
Cost of Goods Available for Sale 27000000
Less: Sales 12000000
Ending Inventory 15000000
Less: Markdowns 1000000
Net Ending Inventory 14000000
Cost to Retail Ratio 0.73
Cost of Ending Inventory 10266667
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