Question

When you undertook the preparation of the financial statements for Sandhill Company at January 31, 2021, the following data were available:

		At Cost		At Retail
Inventory, February 1, 2020		$74,245		$98,800
Markdowns				34,400
Markups				62,600
Markdown cancellations				20,800
Markup cancellations				9,300
Purchases		216,000		293,000
Sales revenue				330,000
Purchases returns and allowances		4,700		5,800
Sales returns and allowances				10,800

Compute the ending inventory at cost as of January 31, 2021, using the retail method which approximates lower of cost or market.

Ending inventory at cost

$

Answer 1

Retail Method of Valuing Inventory:

Particulars	Cost ($)	Retail ($)
Beginning Inventory	74,245	98,800
Add: Purchases	216,000	293,000
Less: Purchase Returns & Allowances	(4,700)	(5,800)
Add: Markups		62,600
Less: Markdowns		(34,400)
Add: Markdown Cancellations		20,800
Less: Markup Cancellaions		(9,300)
Cost of Goods Available for Sale	285,545	425,700

Cost to Retail Ratio =

(Cost of Beginning Inventory + Cost of Inventory Purchased) / Retail Value of Beginning Inventory + Retail Value of Purchases)

= 285,545 / 425,700

= 0.6708

Particulars	Cost ($)	Retail ($)
Cost of Goods Available for Sale	285,545	425,700
Less: Sales		(330,000)
Add: Sales Returns & Allowances		10,800
Ending Inventory		106,500

Cost of Ending Inventory = Ending Inventory under Retail Method * Cost to Retail Ratio

= 106,500 * 0.6708

= $71,440