Question

Phillips Supply uses a periodic inventory system but needs to determine the approximate amount of inventory at the end of each month without taking a physical inventory. Phillips has provided the following inventory data.

	Cost Price				Retail Selling Price
Inventory of merchandise, June 30	$	303,000			$	490,000
Purchases during July		220,000				401,000
Goods available for sale during July	$	523,000			$	891,000
Net sales during July						360,000

a. Estimate the cost of goods sold and the cost of the July 31 ending inventory using the retail method of evaluation. (Round your intermediate calculations to 2 decimal places.)

Answer 1

Ans:

Cost to retail ratio = (A+B)/(C+D)

A = Cost of opening merchandise = $303,000

B = Cost of merchandise purchased during the month = $220,000

C = Retail value of opening merchandise = $490,000

D = Retail value of Merchandise purchased during the year = $401,000

Cost to Retail ratio = ($303,000+$220,000)/($490,000+$401,000)

Cost to Retail ratio = ($523,000/$891,000)

Cost to Retail ratio = 0.58.

Cost of goods sold = (Net sales)*(Cost to retail ratio)

Cost of goods sold = $360,000*0.58

Cost of goods sold = $208,800

calculating cost of ending inventory:

Particulars	cost	Retail value
Goods available for sale	$523,000	$891,000
Net sales	$208,800	$360,000
Cost of ending inventory(531,000*0.58)	$307,980	$531,000

Note: Due to adjusting the ratio to 2 decimal places, The total cost of goods available for sale may not be equal to the sum of cost of goods sold and ending inventory.

Thank you,