Question

Problem 9-10 Wildhorse Inc. uses the retail inventory method to estimate ending inventory for its monthly financial statements. The following data pertain to a single department for the month of October 2018. Inventory, October 1, 2018 At cost $51,400 At retail 77,600 Purchases (exclusive of freight and returns) At cost 299,916 At retail 426,100 Freight-in 16,200 Purchase returns At cost 5,500 At retail 7,800 Markups 8,900 Markup cancellations 2,000 Markdowns (net) 3,600 Normal spoilage and breakage 10,000 Sales revenue 384,300 (a) Using the conventional retail method, prepare a schedule computing estimated lower-of-cost-or-market inventory for October 31, 2018. (Round ratios for computational purposes to 0 decimal places, e.g 78% and final answer to 0 decimal places, e.g. 28,987.) Ending inventory at lower-of-cost-or-market

Answer 1

Calculate the ending inventory at retail price as follows:

	Cost	Retail
Beginning inventory	51400	77600
Purchases	299916	426100
Purchase returns	-5500	-7800
Freight	16200
Add: Mark-ups (net)		6900
Goods available for sale	362016	502800
Less: Mark down (net)		-3600
Less: Sales		-384300
Add: Normal spoilage and breakage		-10000
Inventory at retail		104900

Ending inventory at retail price = $104,900.

Cost to retail ratio = Goods available for sale at cost / Goods available for sale at retail = $362,016 / $502,800 = 0.72

Therefore,

Ending inventory at lower-of-cost-or-market = $104,900 x 0.72 = $75,528