Ivanhoe Inc. uses the conventional retail method to determine its ending inventory at cost. Assume the...

Ivanhoe Inc. uses the conventional retail method to determine its ending inventory at cost. Assume the beginning inventory at cost (retail) were $383500 ($584000), purchases during the current year at cost (retail) were $3208000 ($4993600), freight-in on these purchases totaled $149500, sales during the current year totaled $4466000, and net markups were $404000. What is the ending inventory value at cost? Hint: Round intermediate calculation to 3 decimal places, e.g. 0.635 and final answer to 0 decimal places.

Please show work

$1040688.

$947250.

$1515600.

$788188.

Expert Solution

Answer: The correct answer is $947,250

Goods Available for Sale at Retail = Beginning Inventory + Purchases + Net Markup
Goods Available for Sale at Retail = $584,000 + $4,993,600 + $404,000
Goods Available for Sale at Retail = $5,981,600

Ending Inventory at Retail = Beginning Inventory Retail + Purchases at Retail + Net Markups – Sales
Ending Inventory at Retail = $584,000 + $4,993,600 + $404,000 - $4,466,000
Ending Inventory at Retail = $1,515,600

Goods Available for Sale at cost = Beginning Inventory at cost + Purchases at cost + Freight
Goods Available for Sale at cost = $383,500 + $3,208,000 + $149,500
Goods Available for Sale at cost = $3,741,000

Conventional Cost Ratio = Goods Available for Sale at Cost / Goods Available for Sale at Retail
Conventional Cost Ratio = $3,741,000 / $5,981,600
Conventional Cost Ratio = 0.625

Ending Inventory at Cost = Ending Inventory at Retail * Conventional Cost Ratio
Ending Inventory at Cost = $1,515,600 * 0.625
Ending Inventory at Cost = $947,250

ekkarill92 answered 1 year ago

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