Question

BLANK Company began operations on January 1, 2016, adopting the conventional retail inventory system. None of the company’s merchandise was marked down in 2016 and, because there was no beginning inventory, its ending inventory for 2016 of $38,400 would have been the same under either the conventional retail system or the LIFO retail system.

On December 31, 2017, the store management considers adopting the LIFO retail system and desires to know how the December 31, 2017, inventory would appear under both systems. All pertinent data regarding purchases, sales, markups, and markdowns are shown below. There has been no change in the price level.

		Cost			Retail
Inventory, Jan. 1, 2017		$38,400			$61,100
Markdowns (net)					12,700
Markups (net)					22,000
Purchases (net)		131,500			179,800
Sales (net)					168,200

Determine the cost of the 2017 ending inventory under both (a) the conventional retail method and (b) the LIFO retail method. (Round ratios for computational purposes to 2 decimal place, e.g. 78.72% and final answers to 0 decimal places, e.g. 28,987.)

(a)		Ending inventory using conventional retail method		$
(b)		Ending inventory LIFO retail method		$

Answer 1

(a)

	Cost price	Retail price
Beginning Inventory	$38,400	$61,100
Purchases	$131,500	$179,800
Net Markups		$22,000
Totals	$169,900	$262,900

Cost to retail ratio = $169,900 / $262,900 = 64.63%

Retail price total	$262,900
Less : Net markdowns	$12,700
Total goods at retail	$250,200
Less : Sales	$168,200
Ending inventory at retail	$82,000

Ending inventory at costs = $82,000 * 64.63% = $52,997

(b)

	Cost price	Retail price
Purchases	$131,500	$179,800
Net markups		$22,000
Less : Net markdowns		$12,700
Totals	$131,500	$189,100

Cost to retail ratio = $131,500 / $189,100 = 69.54%

Retail price total	$189,100
Beginning inventory	$61,100
Total goods at retail	$250,200
Less : Sales	$168,200
Ending inventory at retail	$82,000
LIFO layer added	$20,900 ($82,000-$61,100)

Ending inventory at cost = Beginning inventory at cost + LIFO layer at cost

= $38,400 + ($20,900*69.54%)

= $52,934