In: Accounting
San Lorenzo General Store 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 month of
October 2018:
Cost | Retail | |||||
Beginning inventory | $ | 47,000 | $ | 62,000 | ||
Net purchases | 10,480 | 32,800 | ||||
Net markups | 2,400 | |||||
Net markdowns | 1,400 | |||||
Net sales | 44,000 | |||||
Required:
Complete the table below to estimate the average cost of ending
inventory and cost of goods sold for October.
Answer:
Cost of goods available for sale = Cost of beginning inventory +
cost of net purchases
Cost of goods available for sale = $47,000 + 10,480
Cost of goods available for sale = $57,480
Retail value of goods available for sale = Retail value of
beginning inventory + retail value of net purchases
Retail value of goods available for sale = $62,000 + $32,800
Retail value of goods available for sale = $94,800
Ratio of cost of goods available for sale to retail value of
goods available for sale = Cost of goods available for sale /
retail value of goods available for sale
Ratio of cost of goods available for sale to retail value of goods
available for sale = $57,480 / $94,800
Ratio of cost of goods available for sale to retail value of goods
available for sale = 0.61
Retail value of ending inventory = Beginning inventory + net
purchases + net markups - net markdowns - net sales
Retail value of ending inventory = $62,000 + $32,800 + $2,400 -
$1,400 - $44,000
Retail value of ending inventory = $51,800
Average Cost of Ending Inventory = Retail Value of Ending
Inventory * ratio of cost of goods available for sale to retail
value of goods available for sale
Average Cost of Ending Inventory = $51,800 * 0.61
Average Cost of Ending Inventory = $31,598
Cost of goods sold = Retail value of net sales * ratio of cost
of goods available for sale to retail value of goods available for
sale
cost of goods sold = $44,000 * 0.61
cost of goods sold = $26,840