Question

Ivanhoe uses the conventional retail method to determine its ending inventory at cost. Assume the beginning inventory at cost (retail) were $392000 ($596000), purchases during the current year at cost (retail) were $2095000 ($3340000), freight-in on these purchases totaled $131000, sales during the current year totaled $3040000, and net markups (markdowns) were $74000 ($110000). What is the ending inventory value at cost

Answer 1

Answer:

$561,580

Explanation

Particulars                                     Cost             Retail

Beginning inventory                $392,000       $596,000

Add: Purchases                       $2,095,000    $3,340,000

Add: Freight in                         $131,000

Add: Net Markups                                           $74,000  

Goods available for sale        $2,618,000     $4,010,000

Less: Net Markdowns                                     ($110,000)

Less: Sales                                                      ($3,040,000)

Estimated Ending inventory at retail           $860,000  

Cost-to-Retail percentage = Goods available for sale (Cost) / Goods available for sale (Retail)

Cost-to-Retail percentage = $2,618,000 / $4,010,000

Cost-to-Retail percentage = 0.653

Estimated ending inventory at cost = Estimated Ending inventory at retail * Cost-to-Retail percentage

Estimated ending inventory at cost = $860,000 * 0.653

Estimated ending inventory at cost = $561,580