Question

The records for the Clothing Department of Sharapova’s Discount Store are summarized below for the month of January.

Inventory, January 1: at retail $25,000; at cost $17,000

Purchases in January: at retail $137,000; at cost $82,500

Freight-in: $7,000

Purchase returns: at retail $3,000; at cost $2,300

Transfers in from suburban branch: at retail $13,000; at cost $9,200

Net markups: $8,000

Net markdowns: $4,000

Inventory losses due to normal breakage, etc.: at retail $400

Sales revenue at retail: $95,000

Sales returns: $2,400 Ending inventory at lower-of-average-cost-or-market ?

Answer 1

	Cost	Amount ( in $)	Retail
Beginning Inventory	$17,000		$25,000
Add: Purchases	$82,500		$137,000
Add: Freight-in	$7,000		-
Less: Purchases returns	($2,300)		($3,000)
Add: Transfers in from suburban branch	$9,200		$13,000
Total	$113,400		$172,000
Add:Net Markups			$8,000
Total	$113,400		$180,000
Less: Net mark down			($4,000)
Sales		$95,000
Less: Sales revenue		($2,400)	($92,600)
Less : Normal Loss			($400)
Ending Inventory at retail			$83,000
Cost to retail ratio = Cost / Retail   = $113,400/ $180,000   =    63%                Cost of Ending Inventory     =   Cost to Retail Ratio   x   Ending Inventory at retail                                                                       = 63% x $83,000                                                                       =   $52,290
Ending Inventory at lower-of-average-cost-or-market    = $52,290