Question

Adams Corporation 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 month of September 2021:

	Cost		Retail
Beginning inventory	$	20,200	$	39,800
Net purchases		10,100		?
Net markups				4,800
Net markdowns				1,800
Net sales				?

The company used the average cost flow method and estimated inventory at the end of September to be $15,200.50. If the company had used the LIFO cost flow method, the cost-to-retail percentage would have been 50%.

Required:
Compute net purchases at retail and net sales for the month of September using the information provided. (Do not round your intermediate calculations.)

	Net purchases at retail Net sales

Answer 1

SOLUTION

Cost to retail % = 50%

Goods available at retail = 10,100 * 100 / 50 = 20,200

Calculation of Net purchases at retail-

Goods available at retail	20,200
Less: Markups	(4,800)
Add: Marks down	1,800
Net purchases at retail	17,200

Calculation of Net sales-

Particulars	Cost ($)	Retail ($)
Beginning Inventory	20,200	39,800
Add: Purchases	10,100	17,200
Add: Net markup		4,800
Less: Net markdown		(1,800)
	30,300	60,000
Net sales (balancing fig.)		(29,900)
Ending Inventory		30,100

Cost to Retail % = 30,300 / 60,000 = 50.5%

Estimated Inventory at Retail = 15,200.50 / 50.5% = 30,100