Question

Windsor Company began operations on January 1, 2016, adopting the conventional retail inventory system. None of the company’s merchandise was marked down in 2016 and, because there was no beginning inventory, its ending inventory for 2016 of $37,300 would have been the same under either the conventional retail system or the LIFO retail system.

On December 31, 2017, the store management considers adopting the LIFO retail system and desires to know how the December 31, 2017, 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, 2017		$37,300			$60,100
Markdowns (net)					12,900
Markups (net)					22,100
Purchases (net)		128,800			178,800
Sales (net)					169,300

Determine the cost of the 2017 ending inventory under both

(a) the conventional retail method=

(b) the LIFO retail method=

Answer 1

Ans. A	Conventional Retail method:
	Beginning inventory		37300	60100
	Add: Purchase		128800	178800
	Add: Net markups			22100
	Totals		166100	261000
	Less: Net markdowns			-12900
	Sales price of goods available			248100
	Less: Sales			-169300
	Ending inventory at retail			78800
	Cost to retail ratio:		166100 / 261000 * 100
			63.64%
	*Ending Inventory at cost:			78800 * 63.64%
				50148.32
				50148   (rounded off)
Ans.b	LIFO Retail method:
	Beginning inventory		37300	60100
	Purchase		128800	178800
	Net markups			22100
	Net Markdowns			-12900
	Total (excluding beginning inventory)		128800	188000
	Total (including beginning inventory)		166100	248100
	Less: Sales			-169300
	Ending inventory at retail			78800
	Cost to retail ratio:		128800 / 188000 * 100
			68.511	%
	*Computation of ending inventory at LIFO Cost:
	Ending inventory (at retail)			Layers	Cost to retail ratio		Ending inventory at cost
	78800		2016	60100	62.063%		37300
			2017	18700	68.511%		12812
							50112
	37300 / 60100 * 100
	62.063%