Question

 

Tangor Inc. uses the conventional retail inventory method to estimate ending inventory for its monthly financial statements. The following data pertain to a single department for the month of October 2018.

 

                                                                              At Cost             At Retail

      Inventory, 10/1/18                                             52,000             78,000

      Freight in                                                          16,600

      Markdowns (net)                                                                        3,600           

      Markups                                                                                    9,000

      Markup cancellations                                                               2,000

      Purchases                                                       272,000           423,000

      Sales                                                                                      385,000

      Purchase returns                                                 5,600             8,000

      Normal spoilage and breakage                                               10,000

      Employee discounts                                                                   5,000

 

Required:

(a)  Using the conventional retail method, prepare a schedule computing inventory at 10/31/18.

(b)  What factors might cause the difference between computed inventory and the physical count.

Answer 1

Retail inventory method using conventional method

                                                               Cost                                  Retail                              Cost to retail %

Beginning inventory                           $52,000                               $78,000

Purchases                                         272,000                              $423,000

Freight in                                             16,600

Purchase returns                                 (5600)                                 (8000)

Markups net                                                                                      7000   (9000-2000)

Current year additions                    283,000                                 422,000       

Goods available for sale              335,000          /                         500,000       =                          67%

Markdowns, net                                                                               (3600)

Normal spoilage                                                                                (10000)

Employee discount                                                                          (5,000)   

Sales                                                                                           (385,000)

Ending inventory at retail                                                            $106,400                  

Ending inventory at cost = $106,400 * 67% = $ 71,288                      

Thus we see ending inventory at retail is more so we will use cost which is 71,288.           

Answer b)