Question

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.

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