Question

Smith-Kline Company maintains inventory records at selling prices as well as at cost. For 2021, the records indicate the following data:

	($ in 000s)
	Cost			Retail
Beginning inventory	$	83		$	128
Purchases		674			1,009
Freight-in on purchases		33
Purchase returns		1			2
Net markups					4
Net markdowns					8
Net sales					919

Required:
1. Use the retail method to approximate cost of ending inventory valued under Average cost method.

Answer 1

Calculation of Cost to Retail percentage

Average cost Ratio=Goods available for sale at Cost/ Goods available for sale at retail

Goods available for sale at Cost

= Beginning inventory + Purchases + freight in - Purchase return

=83+674+33-1 = 789

Goods available for sale at retail

=Beginning inventory + Purchases - Purchase return +Net Markups - Net Markdowns

=128+1009-2+4-8 = 1131

Average cost Ratio =789/1131= 0.6976

CALCULATION OF ENDING INVENTORY

=Estimated ending inventory at retail * Average cost Ratio

=(1131 -919)*0.6976

=147.89

Note---- Dear student, final answer may slightly vary due to round off.