Nine Company uses a periodic inventory system and the retail inventory method to estimate ending inventory and cost of goods sold. The following information is available as of and for the year ended December 31, 2018.
| Cost | Retail | |
| Inventory, January 1, 2018 | $35,000 | $100,000 |
| Net purchases | 55,000 | 110,000 |
| Net markups | 15,000 | |
| Net markdowns | 25,000 | |
| Net sales | 75,000 |
Estimate the average cost of inventory as of December 31, 2018.
Solution:
| Computation of ending inventory at average cost - Nine Company | ||
| Particulars | Cost | Retail |
| Beginning inventory | $35,000.00 | $100,000.00 |
| Add: Net purchases | $55,000.00 | $110,000.00 |
| Add: Net Markups | $15,000.00 | |
| Less: Net markdowns | -$25,000.00 | |
| Goods available for sale | $90,000.00 | $200,000.00 |
| Cost to retail percentage | 45% | |
| Less: Net Sales | $75,000.00 | |
| Estimated Ending Inventory at retail | $125,000.00 | |
| Estimated ending inventory at cost | $56,250.00 | |
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