Question

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Almaden Valley Variety Store uses the retail Inventory method to estimate ending Inventory and cost of goods sold. Data for 2021 are as follows: Cost $ 29,000 119,600 6,910 8,000 Retail $ 37,000 182,000 Beginning inventory Purchases Freight-in Purchase returns Net markups Net markdowns Normal spoilage Net sales 10,000 14,500 11,500 5,900 169,000 Required: Complete the table below to estimate the ending Inventory and cost of goods sold for 2021, applying the conventional retail method using the information provided. Cost-to-Retail Cost Retail Beginning inventory Plus: Purchases Freight-in Less: Purchase returns Plus: Net markups Less: Net markdowns Goods available for sale Cost-to-retail percentage Less: Normal spoilage Less: Net sales Estimated ending inventory at retail Estimated ending inventory at cost Estimated cost of goods sold

Answer 1

	Cost	Retail	Cost to retail ratio
Beginning inventory	$29,000	$37,000
Plus : Purchases	$119,600	$182,000
Freight-in	$6,910
Less : Purchase returns	$8,000	$10,000
Plus : Net markups		$14,500
Less : Net markdowns		$11,500
Goods available for sale	$147,510	$212,000
Cost to retail percentage			69.58%
Less : Normal spoilage		$5,900
Less : Net sales		$169,000
Estimated ending inventory at retail		$37,100
Estimated ending inventory at cost	$25,814 ($37,100*69.58%)
Estimated cost of goods sold	$121,696 ($29,000+$119,600+6,910-$8,000-$25,814)

Answer 2

cost to retail 147,510/223,500= 0.66 or 66%

estimated ending inventory at cost: 37,100* 66%= 24,486

estimated COGS: 29,000+119,600+6,910-8,000-24,486= 123,021