Question

7:56 Aa a A E9.20 (LO 5) (Retail Inventory Method) Presented below is information related to Bobby Engram Company. Retail Cost Beginning 58,000 $100,000 inventory Purchases 122,000 200,000 (net) Net 10,345 markups Net 26,135 markdowns Sales 186,000 revenue Instructions Compute the ending inventory at retail. a. b. Compute a cost-to-retail percentage (round to two decimals) under the following conditions 1. Excluding markdowns both markups and 2. Excluding markups but including markdowns. 3. Excluding markdowns but including markups 4. Including both markdowns and markups c. Which of the methods in (b) above (1, 2, 3. or 4) does the following? 9-35 C Contents Notebook Reader Bookmarks More

Answer 1

A) Ending Inventory at Retail

Explanation	Amount
Beginning Inventory	$ 100,000
Purchase ( Net )	$ 200,000
Net Markup	$ 10345
(-) Net Markdown	($26,135)
(-) Sales Revenue	($ 186,000)
Ending Inventory will be	$ 98,210

B)   Cost to Retail Percentage

1.Excluding both Markup and Markdown

Explanation	Cost	Retail
Beginning Inventory	$ 58,000	$ 100,000
Purchase (Net)	$ 122,000	$ 200,000
Total	$ 180,000	$ 300,000

cost to retail percentage = $180,000/$300,000 = 60%

2.Excluding Markups but Including Markdown

Explanation	Cost	Retail
Beginning Inventory	$ 58,000	$ 100,000
Purchase (Net)	$ 122,000	$ 200,000
(-) Mark down		($ 26,135)
Total	$ 180,000	$273,865

Cost to retail percentage $180,000 /$ 273,865*100 = 65.73 %

3.Excluding Markdowns but including Markups

Explanation	Cost	Retail
Beginning Inventory	$ 58,000	$ 100,000
Purchase Net	$ 122,000	$ 200,000
+ Net Markups		$ 10,345
Total	$180,000	$ 310,345

Cost to retail percentage = $180,000 / $ 310,345*100 = 58 %

4. Including both Markups and Markdown

Explanation	Cost	Retail
Beginning Inventory	$58,000	$100,000
Purchase Net	$ 122,000	$ 200,000
Net Markups		$ 10,345
(-) Net Mardown		($26,135)
Total	$ 180,000	$ 284,210

Cost to retail percentage = $ 180,000/ $ 284,210 × 100 = 63.33 %

C)

1. Provides the most consecutive estimate of ending inventory ---

Ans; Excluding Markdown But Including Markups

2. Provide an approximation of lower of or market

Ans; Excluding Markdown But Including Markups

3. Is used in Conventional Retail Method

And : Excluding Markdown But Including Markups

D) Compute Ending Inventory at lower of Cost or Market

Ending inventory × 58 %

$ 98,210 * 58 % = $56,962

E)Compute cost of goods sold based on (D)

Cost of goods sold - (D )

$ 180,000 - $ 56,962 = $123,038

F) Compute Gross Margin Based on (D)

Sales Revenue - (D)

$ 186,000 - $ 123,038 = $62,962