Question

Sage Company began operations on January 1, 2019, adopting the conventional retail inventory system. None of the company’s merchandise was marked down in 2019 and, because there was no beginning inventory, its ending inventory for 2019 of $38,000 would have been the same under either the conventional retail system or the LIFO retail system.

On December 31, 2020, the store management considers adopting the LIFO retail system and desires to know how the December 31, 2020, inventory would appear under both systems. All pertinent data regarding purchases, sales, markups, and markdowns are shown below. There has been no change in the price level.

		Cost			Retail
Inventory, Jan. 1, 2020		$38,000			$61,200
Markdowns (net)					12,700
Markups (net)					21,600
Purchases (net)		133,300			177,600
Sales (net)					169,900

Determine the cost of the 2020 ending inventory under both (a) the conventional retail method and (b) the LIFO retail method. (Round ratios for computational purposes to 2 decimal place, e.g. 78.72% and final answers to 0 decimal places, e.g. 28,987.)

(a)		Ending inventory using conventional retail method		$enter a dollar amount rounded to 0 decimal places
(b)		Ending inventory LIFO retail method		$enter a dollar amount rounded to 0 decimal places

Answer 1

Solution :

(a) Conventional Retail Method :

Particulars	Cost	Retail
Inventory, Jan 1, 2020	$ 38,000	$ 61,200
Purchases	$ 133,300	$ 177,600
Mark Ups		$ 21,600
Total : Cost of Goods Available before Markdown	$ 171,300	$ 260,400
Less : Markdowns		$ 12,700
	$ 171,300	$ 247,700
Less : Net Sales		$ 169,900
Inventory at retail method		$ 77,800
Cost / Retail Ratio (171,300 / 260,400) * 100		65.78 %
Inventory at Cost at Conventional Retail Method ( 77,800 * 65.78%)	$ 51,177

(b) Ending Inventory LIFO retail Method :

Particulars	Cost	Retail
Inventory, Jan 1, 2020	$ 38,000	$ 61,200
Purchase	$ 133,300	$ 177,600
Mark Ups		$ 21,600
Markdowns		($ 12,700)
Total (Excluding Inventory Opening Inventory )	$ 133,300	$ 186,500
Cost of Goods Available Including Opening Inventory	$ 171,300	$ 247,700
Less : Net Sales		$ 169,900
Inventory at retail method		$ 77,800
Cost / Retail Ratio (133,300 / 186,500) * 100		71.47 %

Inventory Valuation using LIFO Method:

Particulars	Retail	Cost
Ending Inventory at Retail Method	$ 77,800
Out of This Opening Inventory	$ 61,200	$ 38,000
Balance from this year purchases	$ 16,600
Cost Retail ration for this Year	71.47%
Inventory at cost for this year purchases ( 16,600 * 71.47%)		$ 11,864
Total Inventory at Cost using LIFO Method		$ 49,864