Question

The records for the Clothing Department of Concord’s Discount Store are summarized below for the month of January.

Inventory, January 1: at retail $25,100; at cost $16,900

Purchases in January: at retail $138,900; at cost $93,060

Freight-in: $7,100

Purchase returns: at retail $3,000; at cost $2,400

Transfers in from suburban branch: at retail $13,000; at cost $9,100

Net markups: $8,000

Net markdowns: $3,900

Inventory losses due to normal breakage, etc.: at retail $500

Sales revenue at retail: $93,300

Sales returns: $2,500

(a)

Compute the inventory for this department as of January 31, at retail prices.

Ending inventory at retail

(b) Compute the ending inventory using lower-of-average-cost-or-market. (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 at lower-of-average-cost-or-market ...............$

Answer 1

Solution :

( a )

Ending inventory at retail and cost is

Particulars	Retail	Cost
Beginning Inventory	25,100	16,900
Purchases	1,38,900	93,060
Freight-in	-	7,100
LESS : Purchase returns	3,000	2,400
Transfers in from suburban branch	13,000	9,100
Net Markups	8,000	-
Value of Goods available for Sale	1,82,000	1,23,760
LESS : Net Markdowns	3,900	-
LESS : Net sales revenue ( 93,300 - 2,500 )	90,800	-
LESS : Inventory losses due to normal breakage	500	-
Ending inventory as of January 31	83,100	1,23,760

• The Ending Inventory for this Department as of January 31 at retail prices is $83,100

( b )

To Calculate the Ending inventory at Lower of average cost or market, Calculate the Cost to retail ratio .

Cost to Retail ratio =  Cost of Goods available for sale / Retail value of goods available for sale

= $123706 / 1,82,000

= 68%

Ending inventory at Lower of average cost or Market = $83,100 * 68%

= $56508

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