Question

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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	$	85		$	130
Purchases		676			1,011
Freight-in on purchases		35
Purchase returns		1			2
Net markups					3
Net markdowns					7
Net sales					921

Required:
1. Use the retail method to approximate cost of ending inventory valued under Average cost method. (Enter your answer in thousands including 2 decimal places, i.e. 12,550 would be 12.55.)

2. Use the retail method to approximate cost of ending inventory valued under Conventional method. (Enter your answer in thousands including 2 decimal places, i.e. 12,550 would be 12.55)

Answer 1

Cost of ending inventory :
	($ 000s)
1. Average cost ( use cost to retail ratio B above) = 214 * 70.0441% =	149.89
2. Conventional ( use cost to retail ratio A above) = 214 * 69.1471 % =	147.97

Workings:

	($ 000s)	($ 000s)
	Cost	Retail
Beginning inventory	85.00	130.00
Purchases	676.00	1,011.00
Less : Purchase return	-1.00	-2.00
Freight in on purchases	35.00
Net markups		3.00
Merchandise available for sale	795.00	1,142.00
Cost to retail ratio = Cost / Retail = 795 / 1142 = 69.1471 % (A)
Less :
Net markdowns		-7.00
Merchandise available for sale	795.00	1,135.00
Cost to retail ratio = Cost / Retail = 795 / 1135 = 70.0441 % (B)
Less : Net Sales		-921.00
Ending inventory at retail		214.00