Question

Phillips Supply uses a periodic inventory system but needs to determine the approximate amount of inventory at the end of each month without taking a physical inventory. Phillips has provided the following inventory data. Cost Price Retail Selling Price Inventory of merchandise, June 30 $ 303,000 $ 508,000 Purchases during July 221,000 391,000 Goods available for sale during July $ 524,000 $ 899,000 Net sales during July 210,000 a. Estimate the cost of goods sold and the cost of the July 31 ending inventory using the retail method of evaluation. (Round your intermediate calculations to 2 decimal places.)

Answer 1

The Cost of goods sold

Cost of goods sold = Net Sales x Cost to Retail Ratio

Cost to Retail Ratio = [Goods available for sale at cost / Goods available for sale at retail] x 100

= [$524,000 / 899,000] x 100

= 58.29%

Cost of goods sold = Net Sales x Cost to Retail Ratio

= $210,000 x 58.29%

= $122,409

“Cost of goods sold = $122,409”

The cost of the July 31 ending inventory

The cost of the July 31 ending inventory = Cost of goods available for sale at Cost Price - Cost of goods sold

= $524,000 – 122,409

= $401,591

“The cost of the July 31 ending inventory = $401,591”