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

3) If ABC wishes to approximate LIFO assuming price levels have remained stable, determine the best estimate.

4) If ABC wishes to approximate LIFO assuming price levels have increased 12% since the beginning base level, determine the best estimate.

Answer 1

	Cost	Retail
Beginning inventory	7000000	10000000
Purchases	12800000	15000000
Total Inventory	19800000	25000000
Markups		2000000
Total after Markups	19800000	27000000
Conventional cost to retail ratio	Inventory at cost/Inventory at retail
	19800000/25020000 = 73.33%
Total Inventory		27000000
Less: Markdown		-1000000
Total Inventory after Markdown		26000000
Less: Sales		-12000000
Ending Inventory at retail		14000000
Cost to Retail Ratio		73.33%
Ending Inventory at cost		10266200