Question

Kiddie World 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 quarter ending September 30, 2018:

	Cost			Retail
Beginning inventory	$	370,000		$	515,000
Net purchases		890,000			1,280,000
Freight-in		54,000
Net markups					55,000
Net markdowns					25,000
Net sales					1,235,000

Estimate ending inventory and cost of goods sold using the conventional method. (Round ratio calculation to 2 decimal places (i.e., 0.1234 should be entered as 12.34%.))

Answer 1

	Cost	Retail	Cost-to-Retail Ratio
Beginning inventory	$370,000	$515,000
Plus: Net purchases	890,000	1,280,000
Freight-in	54,000
Net markups		55,000
Goods available for sale		1,850,000
Less: Net markdowns		(25,000)
Goods available for sale	1,314,000	1,825,000
Cost-to-retail percentage			71.03%
Less: Net sales		(1,235,000)
Estimated ending inventory at retail		$590,000
Estimated ending inventory at cost	$419,077

Cost-to-retail percentage = $1,314,000 / $1,850,000 = 71.03%
Estimated ending inventory at cost = 71.03% x   $590,000 = $419,077