Question

Crosby Company owns a chain of hardware stores throughout the state. The company uses a periodic inventory system and the retail inventory method to estimate ending inventory and cost of goods sold. The following data are available for the three months ending March 31, 2018:

	Cost			Retail
Beginning inventory	$	240,000		$	363,000
Net purchases		608,000			788,000
Net markups					14,000
Net markdowns					2,000
Net sales					780,000

Required:
Complete the table below to estimate the LIFO cost of ending inventory and cost of goods sold for the three months ending March 31, 2018. Assume stable retail prices during the period.

Answer 1

	Cost price	Retail price
Purchases	$608,000	$788,000
Net markups		$14,000
Net markdowns		($2,000)
Totals		$800,000

Cost to retail ratio = $608,000 / $800,000

= 76%

Retail price total	$800,000
Beginning inventory	$363,000
Total goods at retail	$1,163,000
Sales	($780,000)
Ending inventory at retail	$383,000
LIFO layer added	$20,000

Ending inventory at cost = Beginning inventory at cost + LIFO layer at cost

= $240,000 + ($20,000*76%)

= $255,200

Cost of goods sold = Beginning inventory + Purchases - Ending inventory

= $240,000 + $608,000 - $255,200

= $592,800