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San Lorenzo General Store uses a periodic inventory system and the retail inventory method to estimate...

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.

Solutions

Expert Solution

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

ekkarill92 answered 7 months ago
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