In: Accounting
Kiddie World uses a periodic inventory system and the retail
inventory method to estimate ending inventory and cost of goods
sold. The following data are available for the quarter ending
September 30, 2018:
Cost | Retail | |||||
Beginning inventory | $ | 410,000 | $ | 545,000 | ||
Net purchases | 910,000 | 1,320,000 | ||||
Freight-in | 44,400 | |||||
Net markups | 59,000 | |||||
Net markdowns | 29,000 | |||||
Net sales | 1,255,000 | |||||
Estimate ending inventory and cost of goods sold (average
cost).
SOLUTION
Particulars | Cost | Retail | Cost to retail relation |
Beginning inventory | 410,000 | 545,000 | |
Add:- | |||
Net purchases | 910,000 | 1,320,000 | |
Freight-in | 44,400 | ||
Net markups | 59,000 | ||
Goods available for sale | 1,364,400 | 1,924,000 | |
Less:Net mark downs | (29,000) | ||
Goods available for sale | 1,364,400 | 1,895,000 | |
Cost to retail % | 72% | ||
Less: Net sales | (1,255,000) | ||
Estimated ending inventory at retail | 640,000 | ||
Estimated ending inventory at cost* | 460,800 | ||
Estimated cost of goods sold** | 903,600 |
Cost to retail % = 1,364,400 / 1,895,000 * 100 = 72%
* 640,000 * 72% = 460,800
** 1,364,400 - 460,800 = 903,600