Question

Exercise 9-25

Marigold Company began operations late in 2016 and adopted the conventional retail inventory method. Because there was no beginning inventory for 2016 and no markdowns during 2016, the ending inventory for 2016 was $13,737 under both the conventional retail method and the LIFO retail method. At the end of 2017, management wants to compare the results of applying the conventional and LIFO retail methods. There was no change in the price level during 2017. The following data are available for computations.

		Cost		Retail
Inventory, January 1, 2017		$13,737		$19,500
Sales revenue				87,000
Net markups				8,600
Net markdowns				1,500
Purchases		63,300		88,000
Freight-in		14,682
Estimated theft				1,800

Compute the cost of the 2017 ending inventory under both:

(a) The conventional retail method. (Round ratios for computational purposes to 0 decimal places, e.g. 78% and final answer to 0 decimal places, e.g. 28,987.)

Ending inventory using the conventional retail method

$

(b) The LIFO retail method. (Round ratios for computational purposes to 0 decimal places, e.g. 78% and final answers to 0 decimal places, e.g. 28,987.)

Ending inventory at cost		$
Ending inventory at retail		$

Answer 1

ANSWER

1)conventional retail method:

	Cost	Retail
Beginning	13,737	19,500
Purchase	63,300	88,000
Freight in	14,682
Mark up		8,600
Inventory after markup	91,719	116,000
less:markdown		-1,500
Inventory after markdown		114,600
less:sales		-87,000
Estimated theft		-1,800
Estimated inventory at retail		25,800

cost to retail ratio = 91,719/116,000= .79 or 79%

Ending inventory at Cost : cost to retail ratio * estimated inventory at retail'              

                    = .73*25,800

                   = $ 20,382

2)

	cost	Retail	cost to retail ratio
Beginning	13,737	19,500	13,737/19,500= .70 or 70%
Purchase	63,300	88,000
Freight in	14,682
Mark up		8,600
less:mark down		-1,500
Inventory without beginning inventory	77,982	95,100	77,982/95,100=.82 or 82%
Inventory with beginning inventory	91,719	114,600
less:sales		-87,000
Estimated theft		-1,800
Inventory at retail		25,800[114,600-87,000-1,800]

under LIFO units acquired last are sold first so ending inventory are left from beginning inventory.

	cost	Retail
Ending inventory at cost left from 2016 (beginning)	19,500*.70= 13,650	19,500
Ending inventory at cost left from 2017	6300*.82=5,166	25,800-19,500= 6,300
Total	18816	25,800

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