Question
In: Accounting
Sheridan uses the conventional retail method to determine its ending inventory at cost. Assume the beginning...
Sheridan uses the conventional retail method to determine its ending inventory at cost. Assume the beginning inventory at cost (retail) were $395000 ($599000), purchases during the current year at cost (retail) were $2155000 ($3400000), freight-in on these purchases totaled $134000, sales during the current year totaled $3100000, and net markups (markdowns) were $77000 ($113000). What is the ending inventory value at cost? Hint: Round intermediate calculation to 3 decimal places, e.g. 0.635 and final answer to 0 decimal places.
Solutions
Expert Solution
Ending inventory at cost = $ 560519
| Cost | Retail | ||
| Beginning Inventory | $ 395000 | $ 599000 | |
| Purchases | $ 2155000 | $ 3400000 | |
| Freight in | $ 134000 | ||
| Merchandise available for Sale | $ 2684000 | $ 3999000 | |
| Add: Markups | $ 77000 | ||
| Totals | $ 2684000 | $ 4076000 | |
| Cost to Retail Ratio | 64.95% | ||
| Less: Markdowns | $ 113000 | ||
| Less: Net sales | $ 3100000 | ||
| Ending inventory at retail | $ 863000 |
Explanation:
Cost:
Merchandise available for sale:
= Beginning inventory + Purchases + Fright-in
= $395,000 + $2,155,000 + $134,000
= $2,684,000
Retail:
Merchandise available for sale:
= Beginning inventory + Purchases + Markups
= $599,000 + $3,400,000 + $77,000
= $4,076,000
Retail total = $4,076,000
Ending inventory at retail = Retail total - Markdowns - Net sales
= $4,076,000 - $113,000 - $3,100,000
= $863,000
Computation of Cost to retail ratio
Cost-to-retail ratio is equal to the total cost of goods available for sale divided by the retail value of goods available for sale.
Cost to retail ratio = cost of goods available for sale / retail value of goods available for sale.
= $2,684,000 ÷ ($3,100,000 + $863,000 )
= $2,574,000 ÷ $3,963,000
= 64.95%
Retail value of goods available for sale. = Net Sales + Ending inventory at retail = 3100000 + 863000 = $ 3963000
Ending inventory at retail = $863,000
Computation of Ending inventory at cost
Ending inventory at cost = Ending inventory at retail x Cost to retail ratio
Ending inventory at cost = $863,000 × 64.95%
= $ 560519
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