Question

Presented below is information related to Pronghorn Company.

Cost Retail Beginning inventory $ 54,510 $96,300 Purchases (net) 122,230 194,700 Net markups 9,740 Net markdowns 25,731 Sales revenue 203,890

Compute the ending inventory at retail. Ending inventory $

Compute a cost-to-retail percentage under the following conditions. (Round ratios to 2 decimal places, e.g. 78.74%) Cost-to-retail percentage (1) Excluding both markups and markdowns. % (2) Excluding markups but including markdowns. % (3) Excluding markdowns but including markups. % (4) Including both markdowns and markups. %

Which of the methods in (b) above does the following? (1) Provides the most conservative estimate of ending inventory. (2) Provides an approximation of lower-of-cost-or-market. (3) Is used in the conventional retail method. (Answers included in drop-down boxes: Excluding both markups and markdowns, excluding markdowns but including markups, excluding markups but including markdowns & including both markdowns and markups.)

Compute ending inventory at lower-of-cost-or-market. (Round ratio to 2 decimal places, e.g. 78.74% and final answer to 0 decimal places, e.g. 6,225.) Ending inventory $

Compute cost of goods sold based on (d). (Round answer to 0 decimal places, e.g. 6,225.) Cost of goods sold $

Compute gross margin based on (d). (Round answer to 0 decimal places, e.g. 6,225.) Gross margin $

Answer 1

1)Ending Inventory at retail : Beginning inventory +purchase +markup -markdown -sales
96,300+194,700+9,740-25,731-203,890
71,119
2)
	Cost	Retail	Cost to Retail %
a	54,510+122,230=176,740	96,300+194,700=291,000	176,740/291,000=.6074 or 60.74%
b	176,740	96,300+194,700-25,731=265,269	176,740/265,269=66.63%
c	176,740	96,300+194,700+9,740= 300,740	176,740/300,740=58.77%
d	176,740	96,300+194,700+9,740-25,731=275,009	176,740/275,009=64.27%
3)
1	excluding markdown including mark up
2	excluding markdown including mark up
3	excluding markdown including mark up
4)Ending inventory at cost :Ending inventory at retail * cost to retail ratio( in part 2(C)
71,119 * 58.77%
$41,797
5)
cost of goods sold: 176,740-41,797 = 134,943
6)
Gross margin : sales revenue - cost of goods sold
203,890 -134,943
$68,947

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