In: Accounting
Sparrow Company uses the retail inventory method to estimate
ending inventory and cost of goods sold. Data for 2018 are as
follows:
Cost | Retail | |||||
Beginning inventory | $ | 87,000 | $ | 177,000 | ||
Purchases | 359,000 | 577,000 | ||||
Freight-in | 8,700 | |||||
Purchase returns | 6,700 | 10,700 | ||||
Net markups | 15,700 | |||||
Net markdowns | 11,700 | |||||
Normal spoilage | 2,700 | |||||
Abnormal spoilage | 4,240 | 7,700 | ||||
Sales | 537,000 | |||||
Sales returns | 9,700 | |||||
The company records sales net of employee discounts. Discounts for
2018 totaled $3,700.
Required:
1. Estimate Sparrow’s ending inventory and cost of
goods sold for the year using the retail inventory method and the
average cost application.
2. Estimate Sparrow’s ending inventory and cost of
goods sold for the year using the retail inventory method and the
conventional application.
|
1. retail inventory method and average cost application
Cost | retail | ||
Beg. Inventory | 87000 | 177000 | |
ADD: | Purchases | 359000 | 577000 |
freight in | 8700 | ||
Less: | Purchase return | 6700 | 10700 |
ADD: | Net markups | 15700 | |
Less: | Net markdowns | 11700 | |
Abnormal spoilage | 4240 | 7700 | |
Goods available for sale | 443760 | 739600 | |
Cost/retail%=443760/739600 = 60% | |||
Less: | Normal spoilage | 2700 | |
Net sales(537000-9700) | 527300 | ||
Employee discounts | 3700 | ||
Ending inventory at retail | 205900 | ||
Ending inventory at cost(60%X205900) | (123,540) | ||
Cost of goods sold | 320,220 |
2. Retail inventory method and the conventional application
|
Particulars | Average cost application |
Conventional application |
Estimated ending inventory at retail | 205,900 | 205,900 |
Estimated ending inventory at cost | 123,540 | 121,605 |
Estimated cost of goods sold | 320,220 | 322,155 |
.