Question

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Retail Inventory Method

Turner Corporation uses the retail inventory method. The following information relates to 2019:

	Cost	Retail			Cost	Retail
Inventory, January 1	$28,000	$44,000		Additional markups	—	$36,800
Purchases (gross price)	140,000	190,000		Markup cancellations	—	7,360
Purchases discounts taken	3,000	—		Markdowns	—	14,000
Purchases returns	6,000	9,000		Markdown cancellations	—	2,100
Freight-in	20,000	—		Net Sales	—	180,000
Employee discounts	—	3,000

Required:

1. Compute the cost of the ending inventory under each of the following cost flow assumption: FIFO. Round the cost-to-retail ratio to three decimal places. If required, round to the nearest dollar.

TURNER CORPORATION
Calculation of Ending Inventory by Retail Inventory Method FIFO
For the year 2019
	Cost	Retail
	$	$
	$	$
	$	$
Ending inventory at retail		$
Ending inventory at cost	$

2. Compute the cost of the ending inventory under each of the following cost flow assumption: Average cost. Round the cost-to-retail ratio to three decimal places. If required, round to the nearest dollar.

TURNER CORPORATION
Calculation of Ending Inventory by Retail Inventory Method Average Cost
For the year 2019
	Cost	Retail
	$	$
	$
Ending inventory at retail		$
Ending inventory at cost	$

3. Compute the cost of the ending inventory under each of the following cost flow assumption: LIFO. Use the given beginning inventory cost in your ending inventory cost at LIFO calculation to avoid a rounding error. Round the cost-to-retail ratio to three decimal places. If required, round to the nearest dollar.

TURNER CORPORATION
Calculation of Ending Inventory by Retail Inventory Method LIFO
For the year 2019
	Cost	Retail
	$	$
	$	$
	$	$
	$	$
Ending inventory at retail		$
Ending inventory at cost	$

4. Compute the cost of the ending inventory under each of the following cost flow assumption: Lower of cost or market (based on average cost). Round the cost-to-retail ratio to three decimal places. If required, round to the nearest dollar.

TURNER CORPORATION
Calculation of Ending Inventory by Retail Inventory Method Lower of Cost or Market (based on average cost)
For the year 2019
	Cost	Retail
	$	$
	$	$
Ending inventory at retail		$
Ending inventory at LCM	$

Answer 1

Calculation of Total Goods Available for Sale.

Particulars	Cost	Retail
Inventory Jan 1	$ 28,000	$ 44,000
+ Purchases ( Gross Price)	$ 140,000	$ 190,000
(-) Purchases discount taken	$ 3,000
(- ) Purchases Return	$ 6,000	$ 9,000
(+ )Freight in	$ 20,000
( + ) Additional Markups		$ 36,800
( - ) Markup Cancellations		$ 7,360
( -) Markdown		$ 14,000
( + ) Markdown Cancellation		$ 2,100
Total Goods Available for Sale	$ 179,000	$ 242,540

Step 2;

Calculation of ending Inventory at Retail

Particulars	Amount
Total Goods available for sale at Retail	$ 242,540
( -) Net Sales	$ 180,000
( - ) Employees discounts	$ 3,000
Ending Inventory at retail	$ 59,540

1.) Using FIFO cash flow assumption the cost to retail ratio is calculated as follows;

Cost to retail ration = ( Total Goods available for sales @ cost - Beginning Inventory @ Cost ) / ( Total Goods Available for Sale @ Retail - Beginning Inventory @ Retail )

Cost - to - Retail Ratio = ($ 179,000 -$ 28,000) / ($242,540 - $ 44,000)

= $ 151,000 / $ 198,540 = 76.05 %

Ending Inventory @ Retail = $ 59,540

FIFO cost to retail ratio = 76.05 %

so, FIFO Ending Inventory = $ 45,280

2.) Using the average cost flow assumption the cost to retail ratio is calculated

Cost to retail ration = Cost of Goods avilable for sales @ cost / cost of goods available for sales at Retail

Cost to retail ratio = $ 179,000 / $ 242,540 = 73.80 %

Ending inventory @ Retail	$ 59,540
Average Cost to retail ratio	73.80
Average Ending Inventory @ cost	$ 42,261

3.)Using the LIFO cash flow assumption the cost to retail ratio is ;

1. Cost to retail ratio = $ 28,000 / $ 44,000 = 63.63 %

2 cost to retail ratio is the cost to retail ratio used foFIFO

Ending inventory @ Retail $ 44,000 * 63.63 = $27,997

17,000 * 73.80 = $ 12546

LIFO ending Inventory at cost = $ 40,543

4. ) Using the lower of cost or market cost flow assumptions

The cost to retail ratio is calculated as below

Cost to retail ratio = Total goods avilable for sale @ Cost / ( Total goods avilable for sales @ Retail + markdown - markdown cancellations )

Cost to retail ratio = $ 179,000 / ( $ 242,540 + 14000 -2100)

Cost to retail ratio = $ 179,000 / $ 254,440 = 70.35

Ending Inventory @ Retail = $ 59,540

Conventional cost to retail ratio = 73.80 %

Conventional ending Inventory @ Cost = $ 43941