Question

Skysong Company began operations on January 1, 2016, adopting the conventional retail inventory system. None of the company’s merchandise was marked down in 2016 and, because there was no beginning inventory, its ending inventory for 2016 of $37,300 would have been the same under either the conventional retail system or the LIFO retail system. On December 31, 2017, the store management considers adopting the LIFO retail system and desires to know how the December 31, 2017, inventory would appear under both systems. All pertinent data regarding purchases, sales, markups, and markdowns are shown below. There has been no change in the price level.

Cost Retail Inventory, Jan. 1, 2017 $37,300 $60,100 Markdowns (net) 12,900 Markups (net) 22,100 Purchases (net) 128,800 178,800 Sales (net) 169,300. (The first number is cost the second is retail)

Determine the cost of the 2017 ending inventory under both (a) the conventional retail method and (b) the LIFO retail method.

Answer 1

A. Computation of ending inventory under Conventional retail method
Particulars	Cost	Retail
Beginning inventory	$37,300	$60,100
Purchases	$128,800	$178,800
Net markups		$22,100
	$166,100	$261,000
less: net markdowns		($12,900)
Sales		($169,300)
Ending inventory at retail		$78,800
Cost to retail ratio:
= $166100/261000* 100
63.64%
Ending inventory at cost :
= $78800*63.64%
$                                                                                                                               50,148.32
b. Computation of Ending inventory under LIFO retail method
Particulars	Cost	Retail
Beginning inventory	$37,300	$60,100
Purchases	$128,800	$178,800
Net markups		$22,100
less: markdowns		($12,900)
Goods available for sale (Excluding beginning inventory)	$128,800	$188,000
Goods available for sale(Including beginning inventory)	$166,100	$248,100
Beginning inventory cost at retail :
37300/60100*100	62.00	%
Ending cost to retail
128800/188000*100	68.51	%
Less : Net sales		-169300
Estimated ending inventory at retail		$78,800
Estimated ending inventory at cost :
Beginning inventory (60100*62.%	37300
Current period layer (78800-60100)*68.51	12812
Estimated ending inventory at cost	50112