Question

Presented below is information related to Sage Hill, Inc.

		Cost		Retail
Beginning inventory		$450,500		$795,000
Purchases		2,014,000		3,551,000
Freight on purchases		85,860
Markups				185,500
Markup cancellations				148,400
Abnormal shortage		15,900		27,560
Markdowns				93,280
Markdown cancellations				12,720
Employee discounts				5,512
Sales revenue				3,789,500
Sales returns				106,000
Normal shortage				18,550
Purchase returns		23,320		43,460

Compute ending inventory by the conventional retail inventory method. (Round percentages for computational purposes to 1 decimal place, e.g. 0.4158 to 41.6% and final answer to 0 decimal places, e.g. 5,275.)

The ending inventory equals?

Answer 1

Solution:

Estimated ending inventory at cost [$ 523,958*58.2%]

$        304,944

working:

	Cost $	Retail $	Cost-to-Retail Ratio
Beginning inventory	$        450,500	$        795,000
Gross Purchases	$    2,014,000	$    3,551,000
freight in	$          85,860
Purchase returns	$        (23,320)	$        (43,460)
Purchase discount	$                   -
Net Markups [185500-148400]		$          37,100
Abnormal Spoilage	$        (15,900)	$        (27,560)
Goods available for sale	$    2,511,140	$    4,312,080
Cost-to-Retail percentage			58.2%
Less: Net sales
Gross Sales		$ (3,789,500)
Sales Returns		$        106,000
Normal Spoilage		$        (18,550)
Empolyee discounts		$          (5,512)
Net Markdown [12720-93280]		$        (80,560)
Estimated ending inventory at retail		$        523,958
Estimated ending inventory at cost [$ 523,958*58.2%]	$        304,944