Question

LeMay Department Store uses the retail inventory method to estimate ending inventory for its monthly financial statements. The following data pertain to one of its largest departments for the month of March 2021:

		Cost		Retail
Beginning inventory	$	46,000	$	66,000
Purchases		213,000		406,000
Freight-in		15,558
Purchase returns		7,000		9,000
Net markups				6,400
Net markdowns				4,100
Normal breakage				9,000
Net sales				286,000
Employee discounts				2,400

Sales are recorded net of employee discounts.

1. Compute estimated ending inventory and cost of goods sold for March applying the conventional retail method.

Answer 1

Calculate the requirements as follows: 1 Particulars 2 Beginning Inventory 3 Add: Purchases 4 Less: Purchase Returns 5 Freight-In 6 Net markups 7 Goods available for sale (without markdowns) 8 Less: Net markdowns 9 Goods available for sale (After considering markdowns) 10 Less: Normal breakage 11 Net Sales 12 Employee discount 13 Estimated ending inventory at retail 14 Estimated ending inventory at cost 15 Estimated cost of goods sold BC Cost Retail $ 46,000 $ 66,000 $2,13,000 $ 4,06,000 $ -7,000 $ -9,000 $ 15,558 $ - $ 6,400 $2,67,558 $ 4,69,400 $ - $ -4,100 $2,67,558 $ 4,65,300 $ -9,000 $-2,86,000 $ -2,400 $ 1,67,900 95,703 $1,71,855 16 17 Cost to retail ratio 57% Calculations: A B 1 Particulars Cost Retail 2 Beginning Inventory 46000 66000 3 Add: Purchases 213000 406000 4 Less: Purchase Returns - 7000 -9000 5 Freight-In 15558 6 Net markups 6400 7 Goods available for sale (without markdowns) =SUM(B2:B6) =SUM(C2:06) 8 Less: Net markdowns -4100 9 Goods available for sale (After considering markdowns) | SUM(B7:38) |-SUM(C7:08) 10 Less: Normal breakage -9000 11 Net Sales -286000 12 Employee discount -2400 13 Estimated ending inventory at retail =C9+C10+C11+C12 14 Estimated ending inventory at cost =C13*B17 15 Estimated cost of goods sold B9-B14 16 17 Cost to retail ratio =B7/C7