Question

Exercise 9-25

Marin 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 $12,016 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		$12,016		$20,100
Sales revenue				75,000
Net markups				9,700
Net markdowns				1,600
Purchases		59,800		76,000
Freight-in		-930
Estimated theft				2,000

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 -

(a) Answer -

The conventional retail method :

	Cost	Retail
Inventory January 1, 2017	$12016	$20100
Purchases	$59800	$76000
Freight in	$930
	$72746	$96100
Add : Net markups		$9700
Total	$72746	$105800
Deduct : Net markdowns		$1600
Sales price of goods available		$104200
Deduct : Sales revenue		$75000
Deduct : Estimated theft		$2000
Ending inventory at retail		$27200

Cost to retail ratio = ($72746 / $105800) * 100

Cost to retail ratio = 68.758% ≈ 69%

Ending inventory at cost = 69% * $27200

Ending inventory at cost = $18768

(b) Answer -

	Cost	Retail
Inventory January 1, 2017	$12016	$20100
Purchases	$59800	$76000
Freight in	$930
Net markups		$9700
Net markdowns		($1600)
Total (excluding beginning inventory)	$60730	$84100
Total (including beginning inventory)	$72746	$104200
Deduct : Sales revenue		$75000
Deduct : Estimated theft		$2000
Ending inventory at retail		$27200

Cost to retail ratio = ($60730 / $84100) * 100

Cost to retail ratio = 72.212% ≈ 72%

Computation of ending inventory at LIFO cost

Ending Inventory at Retail Prices	Layers at Retail Prices (A)	Cost to Retail (Percentage) (B)	Ending Inventory at LIFO Cost (A) * (B)
$27200	$20100	$59.78%	$12016
	$7100	$72%	$5112
			$17128

Prior year cost to retail ratio = ($12016 / $20100) * 100 = 59.78%