Question

Harvey's Junk Jewelry started business January 1, 2021, and uses the LIFO retail method to estimate ending inventory. Listed below is data accumulated for the year ended December 31, 2021:

	Cost				Retail
Beginning inventory	$	16,300			$	24,300
Purchases		50,300				84,500
Freight-in		3,800
Purchase returns		3,000				3,900
Net markups						5,200
Net markdowns						6,700
Net sales						71,900
Employee discounts						2,000

To the nearest thousand, the estimated ending inventory at cost is (round cost-to-retail ratio to whole percentage):

Answer 1

Firstly we need to calculate cost to retail ratio and estimated ending inventory at retail which is shown as follows:-

Calculation of Estimated Ending Inventory at Retail (Amounts in $)

	Cost	Retail
Beginning Inventory	16,300	24,300
Add: Purchases	50,300	84,500
Freight-in	3,800
Less: Purchase returns	3,000	3,900
Add: Net Markups		5,200
Less: Net Markdowns		6,700
Goods available for sale (excluding beginning inventory)	51,100	79,100
Goods available for sale (including beginning inventory)	67,400	103,400
Less: Net Sales		71,900
Employee Discounts		2,000
Estimated Ending Inventory at Retail		29,500

Current period cost to retail %

= Goods available for sale at cost/Goods available for sale at retail (excluding beg inventory)

= $51,100/$79,100 = 65%

Calculation of Estimated Ending Inventory at Cost (Amounts in $)

	Retail	Cost
Beginning Inventory	24,300	16,300
Current Period's layer	5,200 (29,500-24,300)	3,380 (5,200*65%)
Estimated Ending Inventory	29,500	19,680

Therefore estimated ending inventory at cost is $19,680 (or 20,000 to the nearest thousands).