Question

Kiddie World uses a periodic inventory system and the retail inventory method to estimate ending inventory and cost of goods sold. The following data are available for the quarter ending September 30, 2018: Beginning inventory Net purchases Freight-in Net markups Net markdowns Net sales Cost Retail $360,000 $ 510,000 884,000 1,270,000 41,100 54,000 24,000 1,230,000 Estimate ending inventory and cost of goods sold (LIFO). (Round ratio calculation to 2 decimal places (i.e., 0.1234 should be entered as 12.34%.))

Answer 1

Answer

Ending inventory is $411,800.

Cost of goods sold is $873,300.

Explanation

Cost of goods available for sale (COGAFS) at retail is computed using the equation given below:

COGAFS = Opening inventory + Purchase + Net Mark-ups – Net Markdown

                 = $510,000 + $1,270,000 + $54,000 - $24,000

                 = $1,810,000.

Ending inventory at retail is computed using the equation given below:

Ending inventory = COGAFS – Sales

                             = $1,810,000 - $1,230,000

                             = $580,000

Cost of goods available for sale (COGAFS) at cost is computed using the equation given below:

COGAFS = Opening inventory + Purchases + Freight-in

                = $360,000 + $884,000 + $41,100

                = $1,285,100

The ratio of ending inventory is as follows:

Ratio = Ending inventory at retail ÷ Goods available at retail         

          = $580,000 ÷ $1,810,000

          = 0.320442

Ending inventory at cost = COGAFS at cost × Ratio

                                      = $1,285,100 × 0.320442

                                    = $411,800.

Cost of goods sold is computed using the equation given below:

Cost of goods sold = Cost of goods available for sale at cost - Ending inventory

= $1,285,100 - $411,800

= $873,300.