Question

Smith-Kline Company maintains inventory records at selling prices as well as at cost. For 2021, the records indicate the following data:

	($ in 000s)
	Cost			Retail
Beginning inventory	$	82		$	127
Purchases		673			1,008
Freight-in on purchases		32
Purchase returns		1			2
Net markups					3
Net markdowns					8
Net sales					916

Use the retail method to approximate cost of ending inventory valued under Average cost method

Answer 1

Computation of the ending inventory under Average cost method
	Cost ($ in 000S)	Retail ($ in 000S)
Beginning inventory	82.00	127.00
Purchases	673.00	1,008.00
Freight- in on purchases	32.00
Purchase returns	(1.00)	(2.00)
Net markups	-	3.00
Net markdowns	-	(8.00)
Goods available for sale	786.00	1,128.00
Deduct: Net sales		(916.00)
Ending inventory, at retail		212.00
Average cost ratio = 786 / 1,128 = 69.68%
Ending inventory under Average cost method = 212 * 69.68% = $147.72