Question

Cost Retail $32,500 130,000 Inventory, January 1 Purchases Markups (net) Markdowns (net) Sales Required: $65,000 235,364 4,000 3,000 180,000 - 1. Compute the ending inventory by the retail inventory method for the following cost flow assumption: FIFO. Round the cost-to-retail ratio to three decimal p HARMES COMPANY Calculation of ending inventory by retail inventory method FIFO Cost 130.000 Purchases Add: Markups (net) Less: Markdowns (net) $130,000 2.36,364 Cost-to-retail ratio: Beginning inventory Goods available for sale Less: Sales

Answer 1

HARMES COMPANY Calculation of ending inventory by retail inventory method FIFO Cost Retail Purchases 130,000 $ 235,364 Add: Markups (net) $ 4,000 Less: Markdowns (net) $ 3,000 130,000$ 236,364 Cost-to-retail Ratio=130000 / 236364 = Add: Beginning inventory Goods available for sale Less: Sales Ending inventory at retail Ending inventory at cost($121364 x 0.55) 0.55 32,500 $ 162,500 $ - $ 66,750 $ 65,000 301,364 180,000 121,364

HARMES COMPANY Calculation of ending inventory by retail inventory method Average Cost Cost Retail Beginning inventory 32,500 $ Purchases 130,000$ Add: Markups (net) Less: Markdowns (net) $ Goods available for sale 162,500 $ Cost-to-retail Ratio=162500/301364 = 0.539 = 0.54 Less: Sales Ending inventory at retail 65,441 $ Ending inventory at cost($121364 x 0.54) 65,000 235,364 4,000 3,000 301,364 180.000 121,364

HARMES COMPANY Calculation of ending inventory by retail inventory method LIFO Cost Retail Beginning inventory 32,500 $ Cost-to-retail Ratio=$32500 / 65000 = 0.50 65,000 130,000$ 235,364 4,000 3,000 301,364 - $ 162,500 $ 0.43 Purchases Add: Markups (net) Less: Markdowns (net) Goods available for sale Cost-to-retail Ratio=130000/$301364 = Less: Sales Ending inventory at retail Ending inventory at LIFO cost Beginning layer ($65000*0.50 New layer($ 56364 x 0.43) Total - $ 56,737$ 180,000 121,364 32,500 24,237 56,737

HARMES COMPANY Calculation of ending inventory by retail inventory method Lower of Cost or Market (based on average cost) Cost Retail Beginning inventory 32,500 $ 65,000 Purchases 130,000 $ 235,364 Add: Markups (net) $ 4,000 162,500 $ 304,364 Cost-to-retail Ratio=$162500/304364 0.53 Less: Markdowns (net) Goods availble for sale Less: Sales Ending inventory at retail Ending inventory at LCM($121364 x 0.53) 162,500 $ $ 64,323 S 3,000 301,364 180,000 121,364

I have computed the cost of inventory using 2 decimal place, You can use 3 decimal place to calculate ending inventory if necessary