Question

Vaughn Company began operations late in 2019 and adopted the conventional retail inventory method. Because there was no beginning inventory for 2019 and no markdowns during 2019, the ending inventory for 2019 was $13,869 under both the conventional retail method and the LIFO retail method. At the end of 2020, management wants to compare the results of applying the conventional and LIFO retail methods. There was no change in the price level during 2020. The following data are available for computations.

		Cost		Retail
Inventory, January 1, 2020		$13,869		$19,500
Sales revenue				87,000
Net markups				8,600
Net markdowns				1,500
Purchases		63,300		83,600
Freight-in		11,074
Estimated theft				1,800

Compute the cost of the 2020 ending inventory under both:

(a) The conventional retail method. (Round ratios for computational purposes to 0 decimal places, e.g. 78% and final answer to 0 decimal places, e.g. 28,987.)

Ending inventory using the conventional retail method

$

(b) The LIFO retail method. (Round ratios for computational purposes to 0 decimal places, e.g. 78% and final answers to 0 decimal places, e.g. 28,987.)

Ending inventory at cost		$
Ending inventory at retail		$

Answer 1

a. Conventional retail method-

	Cost	Retail	Cost to retail ratio
Beginning	13,869	19,500
Purchase	63,300	83,600
Freight in	11,074
Mark up		8,600
Inventory after markup	88,243	111,700	88243 / 11170 = 0.79 or 79%
less:markdown		-1,500
Inventory after markdown		110,200
less:sales		-87,000
Estimated theft		-1,800
Estimated inventory at retail		21,400

Ending inventory at Cost = Cost to retail ratio x Estimated inventory at retail             

                    = .79*21,400

                   = $ 16,906

b. LIFO Retail method-

	Cost	Retail	Cost to retail ratio
Beginning	13,869	19,500	13,869 / 19,500= .71 or 71%
Purchase	63,300	83,600
Freight in	11,074
Mark up		8,600
less:mark down		-1,500
Inventory without beginning inventory	74,374	90,700	74,374 / 90,700 =.82 or 82%
Inventory with beginning inventory	88.243	110,200
less:sales		-87,000
Estimated theft		-1,800
Inventory at retail		21,400

Under LIFO, units acquired last are sold first. So ending inventory are remaining from beginning inventory-

	cost	Retail
Ending inventory at cost, left from 2016 (beginning)	19,500 x .71= 13,845	19,500
Ending inventory at cost left from 2017	1900 x .82= 1558	21,400 - 19,500 = 1900
Total	15,403	21,400