Question

1. Data below for the year ended December 31, 2018, relates to Houdini Inc., which began operations on January 1, 2018. The retail price index at the end of 2018 was 1.10.

   	Cost					Retail
   Beginning inventory	$	66,000					$	104,000
   Net purchases		280,000						420,000
   Net markups								20,000
   Net markdowns								40,000
   Net sales								375,000

   Required: Calculate estimated ending inventory at cost assuming Houdini uses the Dollar-Value LIFO retail method.

Answer 1

• Requirement

Estimated ending inventory
= $ 76,220

	Step 1	Step 2	Step #3
Ending Inventory at Year end retail prices	Ending Inventory at Year end BASE YEAR retail prices	Inventory Layer at base year retail prices	Inventory Layers converted to cost
$129,000 [see below]	$117,273	$104,000	$66,000		[beginning]
	[ 129000 / 1.1 ]	$13,273	$10,220		[13273 x 70% x 1.10]
Total ending Inventory at dollar value LIFO retail cost				$76,220

	Cost	Retail	Cost to retail %
Beginning Inventory	$66,000	$104,000	63.462%
Net Purchases	$280,000	$420,000
Net Mark ups	$0	$20,000
Net Mark downs		($40,000)
Purchases	$280,000	$400,000	70.000%
Goods available for sale	$346,000	$504,000
Net Sales		($375,000)
Ending Inventory at Retail		$129,000
Ending Inventory at Cost	($76,220)