Question

James store uses the retail inventory method to estimate ending inventory and cost of goods sold. Data for the year 2016 is as follows: beginning inventory $180,000 (cost) 300,000 (retail); purchase 1,479,000 (cost) 2,430,000 (retail); fright-in 30,000; net markups 90,000; net markdowns 45,000; net sales 2,340,000. Estimate the ending inventory and cost of goods sold for 2016, apple the conventional retail method (avg, LCM)

Answer 1

Retail Value of goods Available for sale during the period

= Retail value of beginning inventory + Retail value of goods purchased + Net markups – net markdowns

= $300,000 + 2,430,000 + $90,000 - $45,000

=$2,775,000

Cost to retail Ratio = Cost of beginning inventory & goods purchased including incidental costs/Retail value of beginning inventory & goods purchased during the year + net markups – net markdowns

= ($180,000+$1,479,000+$30,000)/($300,000+$2,430,000+$90,000-$45,000)

=$1,689,000/$2,775,000 = 0.609

Estimated cost of ending inventory

=( Retail value of goods available for sale – Goods Sold during the period) x Cost to retail Ratio

= ($2,775,000 - $2,340,000) x 0.609

= $435,000 x 0.609

=$264,915

Estimated Cost of Goods Sold

= Cost of Beginning Inventory + Cost of Goods Purchased – Estimated cost of ending Inventory

=$180,000 + $1,479,000 - $264,915

= $1,394,085