Question

ACC 304: Financial Reporting In Class Problems Chapters 7-9 Problem #4: Retail Inventory Method The records of Ellen's Boutique report the following data for the month of April. Sales Sales returns Markups Markup cancellations Markdowns Markdown cancellations Freight on purchases $99,000 2,000 10,000 1,500 9,300 2,800 2,400 Purchases (at cost) Purchases (at sales price) Purchase returns (at cost) Purchase returns (at sales price) Beginning inventory (at cost) Beginning inventory (at sales price) $48,000 88,000 2,000 3,000 30,000 Instructions: Compute the ending inventory by the conventional retail inventory method.

Answer 1

	Cost price	Retail price
Beginning Inventory	$30,000	$46,500
Purchases	$46,000 ($48,000-$2,000)	$85,000 ($88,000-$3,000)
Net Markups		$8,500 ($10,000-$1,500)
Freight in	$2,400
Totals	$78,400	$140,000

Cost to retail ratio = $78,400 / $140,000 = 0.56

Retail price total	$140,000
Less : Net markdowns	$6,500 ($9,300-$2,800)
Total goods at retail	$133,500
Less : Sales	$97,000 ($99,000-$2,000)
Ending inventory at retail	$36,500

Ending inventory at costs = $36,500 * 0.56 = $20,440