Question

The following data has been summarized for the year ended December 31, 2021: Cost Retail Inventory, January 1 $ 88,000 $ 132,000 Purchases 163,000 240,000 Net markups 10,100 Net markdowns 9,200 Normal spoilage 43,200 Net sales 213,000 Required: Estimate the cost of ending inventory applying the conventional retail method.

Answer 1

* The conventional retail inventory method is based on the relationship between a product's cost and its retail price.

Conventional method
Particulars	Cost	Retail
Beginning Inventory	$                       88,000	$                    132,000
Purchases	$                    163,000	$                    240,000
Total:	$                    251,000	$                    372,000
Add:Markups		$                       10,100
Total before markdown	$                    251,000	$                    382,100
Deduct: Markdowns		-$                        9,200
Goods available for sale	$                    251,000	$                    372,900
Deduct:
Normal Spoilage		$                       43,200
Net Sales		$                    213,000
Ending Inventory		$                    203,100
Cost to retail ratio	$                    251,000	65.69%
	$                    382,100
Ending Inventory, at cost	($203,100*65.69%)= $133,416.40
		$                    133,416
*Ending Inventory=$372,900-43,200-213,000=$203,100

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Elements	Treatment
Purchase	Added to both cost and retail
Purchase Return	Deducted to both cost and retail
Additional markups	Added to original retail price
Markups	Added to original retail price
Markdown	Deducted in price of an item below its original selling price
Sales	Deducted in price of an item below its original selling price
Cost of Retail	Goods available for Sale in Retail/Goods available for sale*100

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