Question

Presented below is information related to Vaughn Company. Cost Retail Beginning inventory $ 61,600 $107,300 Purchases (net) 120,170 180,700 Net markups 10,325 Net markdowns 26,679 Sales revenue 187,090

Compute the ending inventory at retail. Ending inventory $ LINK TO TEXT

Compute a cost-to-retail percentage under the following conditions. (Round ratios to 2 decimal places, e.g. 78.74%) Cost-to-retail percentage (1) Excluding both markups and markdowns. % (2) Excluding markups but including markdowns. % (3) Excluding markdowns but including markups. % (4) Including both markdowns and markups. % LINK TO TEXT

Which of the methods in (b) above does the following? (1) Provides the most conservative estimate of ending inventory. Excluding Both Markups and Markdowns.Excluding Markdowns but Including MarkupsExcluding Markups but Including MarkdownsIncluding Both Markdowns and Markups (2) Provides an approximation of lower-of-cost-or-market. Excluding Both Markups and Markdowns.Excluding Markdowns but Including MarkupsExcluding Markups but Including MarkdownsIncluding Both Markdowns and Markups (3) Is used in the conventional retail method. Excluding Both Markups and Markdowns.Excluding Markdowns but Including MarkupsExcluding Markups but Including MarkdownsIncluding Both Markdowns and Markups LINK TO TEXT

Compute ending inventory at lower-of-cost-or-market. (Round ratio to 2 decimal places, e.g. 78.74% and final answer to 0 decimal places, e.g. 6,225.) Ending inventory $ LINK TO TEXT

Compute cost of goods sold based on (d). (Round answer to 0 decimal places, e.g. 6,225.) Cost of goods sold $ LINK TO TEXT

Compute gross margin based on (d). (Round answer to 0 decimal places, e.g. 6,225.) Gross margin $

Answer 1

ANSWER

Compute a cost-to-retail percentage under the following conditions

Answer 1.

Excluding both mark-ups and markdowns:

Cost = $61,600 + 120,170 = $181,770

Retail = $107,300 + 180,700 = $288,000

Cost-to-retail percentage = $181,770/288,000

Cost-to-retail percentage = 0.6311 = 63.11%

Answer 2.

Excluding mark-ups but including markdowns:

Cost = $61,600 + 120,170 = $181,770

Retail = $107,300 + 180,700 – 26,679 = $261,321

Cost-to-retail percentage = $181,770/261,321

Cost-to-retail percentage = 0.6956 = 69.56%

Answer 3.

Excluding markdowns but including markups:

Cost = $61,600 + 120,170 = $181,770

Retail = $107,300 + $180,700 + $10,325 = $298,325

Cost-to-retail percentage = $181,770/298,325

Cost-to-retail percentage = 0.6093 = 60.93%

Answer 4.

Including both markdowns and markups:

Cost = $61,600 + 120,170 = $181,770

Retail = $107,300 + $180,700 + $10,325 - $26,679 = $271,646

Cost-to-retail percentage = $181,770/271,646

Cost-to-retail percentage = 0.6691 = 66.91%

Which of the methods in (b) above does the following?

Provides the most conservative estimate of ending inventory.	Excluding Markdowns but Including Markups
Provides an approximation of lower-of-cost-or-market.	Excluding Markdowns but Including Markups
Is used in the conventional retail method.	Excluding Markdowns but Including Markups

a)	Compute ending inventory at lower-of-cost-or-market.
		Cost	Retail
	Beginning inventory	$ 61,600	$              107,300
	Purchases (net)	$     120,170	$              180,700
	Net markups		$                10,325
		$     120,170	$              298,325
	Net markdowns		$                26,679
		$     120,170	$              271,646
	Sales revenue		$    187,090
	Ending inventory at retail		$                      84,556
	Ending inventory=84556*120170/298325=34,060.49
b)	Compute cost of goods sold based on (d)
	Cost of goods sold=120170-34060.49= $ 86109.51
c)	Compute gross margin based on (d)
	Gross profit=187090-86109.51=$ 100,980.49

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