Question

Flounder Company began operations late in 2016 and adopted the conventional retail inventory method. Because there was no beginning inventory for 2016 and no markdowns during 2016, the ending inventory for 2016 was $12,302 under both the conventional retail method and the LIFO retail method. At the end of 2017, management wants to compare the results of applying the conventional and LIFO retail methods. There was no change in the price level during 2017. The following data are available for computations.

	Cost		Retail
Inventory, January 1, 2017		$12,302		$18,900
Sales revenue				82,000
Net markups				8,400
Net markdowns				1,600
Purchases		61,700		88,800
Freight-in		11,912
Estimated theft				2,100

Compute the cost of the 2017 ending inventory under both:

(a) The conventional retail method. (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 using the conventional retail method: $

(b) The LIFO retail method.(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 cost: $

Ending inventory at retail: $

Answer 1

(a) Conventional Retail Method :-

	Cost	Retail
Inventory, January 1, 2017	12302	18900
Purchases (net)	61700	88800
	74002	107700
Add: Net Markups	-------	8400
Total	74002	116100
Deduct: Net Markdowns	------	1600
Sales Price of goods available		114500
Deduct: Sales (Net)		82000
Ending Inventory at retail		32500

Cost to retail ratio = 74002 / 116100 = 64%

Ending Inventory at cost = 64% * 32500 = 20800

(b) LIFO Retail Method :-

	Cost	Retail
Inventory, January 1, 2017	12302	18900
Purchases (net)	61700	88800
Net Markups	-------	8400
Net Markdowns	------	(1600)
Total (excluding beginning inventory)	61700	95600
Total (including beginning inventory)	74002	114500
Deduct Sales (net)		82000
Ending Inventory at retail		32500

Cost to retail ratio = 61700/95600 = 65%

Computation of Ending Inventory at LIFO cost, 2017 :-

Ending Inventory at Retail Price	Layers at Retail Price		Cost to Retail (%)	Ending Inventory at LIFO cost
32500	2016 = 18900	X	65%*	12285
	2017 = 13600	X	65%	8840

12302/18900 = 65%*