Question

Hutch, Inc., uses the conventional retail inventory method to account for inventory. The following information relates to current year's operations: Average Cost Retail $600,000$920,000 Beginning inventory and purchases Net markups Net markdowns Sales 40,000 60,000 780,000 What amount should be reported as cost of sales for the year?

Answer 1

Working : Cost to retail ratio |Cost $ 600,000.00 Beginning Inventory and net purchases Net markups Atta Retail $ 920,000.00 $ 40,000.00 $ 960,000.00 $ 60,000.00 $ 900,000.00 Less : markdowns Goods available for sale 600,000.00 Cost to retail percentage 62.50% less: net sales Estimated ending inventory at retail Estimated ending inventory at cost $ 780,000.00 $ 120,000.00 $ 75,000.00 Note : Cost to retail percentage Estimated ending inventory at cost $600,000/ ($920,000-$40,000) 120000*62.5% 63% 75,000.00 $ Therefore, Cost of Sales - Beginning inventory + Net purchases - Ending inventory $600000-$75000 $525,000