Question

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		$51,900
At retail		77,300
Purchases (exclusive of freight and returns)
At cost		268,222
At retail		425,400
Freight-in		16,500
Purchase returns
At cost		5,500
At retail		8,100
Markups		9,100
Markup cancellations		2,000
Markdowns (net)		3,600
Normal spoilage and breakage		9,900
Sales revenue		389,600

(a) Using the conventional retail method, prepare a schedule computing estimated lower-of-cost-or-market inventory for October 31, 2018

Answer 1

Computation of Ending inventory using Conventional retail method

Particulars	Cost		Retail
Beginning inventory	$51,900		$77,300
Purchases	$268,222		$425,400
Purchase returns	($5,500)		($8,100)
Freight in	$16,500
Totals	$331,122		$494,600
Markups		$9,100
Markup cancellations		($2,000)	$7,100
Totals	$331,122		$501,700
Markdowns			($3,600)
Normal spoilage and breakage			($9,900)
Sales revenue			($389,600)
Total			$98,600

Cost to retail ratio = $331,122 / $501,700 = 66%

Ending inventory at lower of cost or market = $98,600*66% = $65,076