Question

Sparrow Company uses the retail inventory method to estimate ending inventory and cost of goods sold. Data for 2021 are as follows: Cost Retail Beginning inventory $ 83,000 $ 173,000 Purchases 368,000 573,000 Freight-in 8,300 Purchase returns 6,300 10,300 Net markups 15,300 Net markdowns 11,300 Normal spoilage 2,300 Abnormal spoilage 4,405 7,300 Sales 533,000 Sales returns 9,300 The company records sales net of employee discounts. Employee discounts for 2021 totaled $3,300.

Required: 1. Estimate Sparrow’s ending inventory and cost of goods sold for the year using the retail inventory method and the average cost application. (Round Cost-to-retail percentage to 2 decimal places and final answers to the nearest whole dollar amount.)

Estimated ending inventory at retail?

Estimated ending inventory at cost?

Estimated Cost of Good sold?

Answer 1

1) Average Cost Method
Beginning Inventory	$    83,000.00	$  173,000.00
Add : Purchase	$  368,000.00	$  573,000.00
Less : Purchase Returns	$     (6,300.00)	$   (10,300.00)
Add : Freight in	$      8,300.00
Net Markup		$    15,300.00
Less : Net Markdowns		$   (11,300.00)
Abnormal Spoilage	$     (4,405.00)	$     (7,300.00)
Goods Available for sale (A)	$  448,595.00	$  732,400.00
Less : Normal Spoilage		$     (2,300.00)
Less : Sales
Net Sales (533000-9300)		$ (523,700.00)
Employee Disccounts		$     (3,300.00)
Estimated Ending Inventory at Retail (B)		$  203,100.00
Less : Estimated Ending Inventory at Cost (See Below) (B)	$ (124,398.75)
Estimated Cost of goods sold (A-B)	$  324,196.25
Estimated ending inventory at retail	$  203,100.00
Estimated ending inventory at cost	$  124,398.75
Estimated Cost of Good sold	$  324,196.25
Cost to Retail %=  (Goods Available for sale at cost / Goods Available for sale at retail)
Cost to Retail %=  (448,595/732400)	61.25%
Amount of Estimated Ending Inventory at Cost= Estimated Ending Inventory at retail x cost to retail %
Amount of Estimated Ending Inventory at Cost=  203,100 x 61.25%	$  124,398.75