In: Accounting
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 |
$ |
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 |