Question

Sarasota Company began operations late in 2016 and adopted the conventional retail inventory method. Because there was no beginning inventory for 2016 and no markdowns during 2016, the ending inventory for 2016 was $11,811 under both the conventional retail method and the LIFO retail method. At the end of 2017, management wants to compare the results of applying the conventional and LIFO retail methods. There was no change in the price level during 2017. The following data are available for computations.

		Cost		Retail
Inventory, January 1, 2017		$11,811		$18,900
Sales revenue				80,000
Net markups				9,200
Net markdowns				1,500
Purchases		53,400		74,600
Freight-in		6,679
Estimated theft				1,900

Compute the cost of the 2017 ending inventory under both:

(A) The conventional retial method. Ending inventory using concentional retal method $_____________ (I kept getting $20,167, which is the incorrect answer. I am unable to get the second two if this one is wrong so please help)

(B) The LIFO retail method

Ending inventory at cost $_____________ and Ending inventory at retail $_____________

Answer 1

(A) Conventional Retail Method:

	Cost	Retail
Beginning	11,811	18,900
Purchase	53,400	74,600
Freight in	6,679
Mark up		9,200
Inventory after markup	71,890	1,02,700
less:markdown		-1,500
Inventory after markdown		1,01,200
less:sales		-80000
Estimated theft		-1,900
Estimated inventory at retail		19,300

Cost to retail ratio = 71,800/102,700 = 0.69912 or 69.91%

Ending Inventory at Cost :

Cost to retail ratio * Estimated inventory at retail = 69.91% * 19,300 = 13,493.0867

2)

	cost	Retail	cost to retail ratio
Beginning	11,811	18,900	11,811/18,900= 0.624921 or 62.50%
Purchase	53,400	74,600
Freight in	6,679
Mark up		9,200
less:mark down		-1500
Inventory witHout beginning inventory	60,079	82,300	60,079/82,300=0.73 or 73%
Inventory with beginning inventory	71,890	1,01,200
less:sales		-80000
Estimated theft		-1900
Inventory at retail		19,300

Under LIFO System:

	cost	Retail
Ending inventory at cost left from2016 (beginning)	18,900*0.625 = 11,811	18,900
Ending inventory at cost left from 2017	400*0.73= 292	19,300-18,900= 400
Total	12103	19,300