Question

Exercise 9-24

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Culver Company began operations on January 1, 2016, adopting the conventional retail inventory system. None of the company’s merchandise was marked down in 2016 and, because there was no beginning inventory, its ending inventory for 2016 of $37,300 would have been the same under either the conventional retail system or the LIFO retail system.

On December 31, 2017, the store management considers adopting the LIFO retail system and desires to know how the December 31, 2017, inventory would appear under both systems. All pertinent data regarding purchases, sales, markups, and markdowns are shown below. There has been no change in the price level.

Cost
Retail
Inventory, Jan. 1, 2017 $37,300 $60,100
Markdowns (net) 12,900
Markups (net) 22,100
Purchases (net) 128,800 178,800
Sales (net) 169,300

Determine the cost of the 2017 ending inventory under both (a) the conventional retail method and (b) the LIFO retail method. (Round ratios for computational purposes to 2 decimal place, e.g. 78.72% and final answers to 0 decimal places, e.g. 28,987.)

(a) Ending inventory using conventional retail method
$
[Entry field with correct answer]
(b) Ending inventory LIFO retail method
$
[Entry field with incorrect answer]

Answer 1

Solution:
(a) Ending inventory using conventional retail method = $50,148
Working Notes:
			Cost	Retail
1	Inventory, Jan. 1, 2017		$37,300	$60,100
2	Purchases (net)		$128,800	$178,800
3=1+2			$166,100	$238,900
4	Add: Net markups			22,100
5=3+4	Total		$166,100	$261,000
6	Less: Markdowns (net)			$12,900
7=5-6	Sales price of goods available			$248,100
8	Less: Sales (net)			$169,300
9=7-8	Ending inventory at retail			$78,800
	Cost-to-retail ratio =( Cost price of Beginning inventory & purchases )/(Retail price of beginning inventory & purchases)
		=166,100/261,000	from above 5.
		=0.63639846
		=63.64%
	Ending inventory at cost = Cost-to-retail ratio x Ending inventory at retail
	=63.64% x $78,800
	=50,148.32
	=$50,148
(b) Ending inventory LIFO retail method = $50,109
Working Notes:
			Cost	Retail
1	Inventory, Jan. 1, 2017		$37,300	$60,100
2	Purchases (net)		$128,800	$178,800
3	Add: Net markups			22,100
4	Less: Markdown			$12,900
5=2+3-4	Total (excluding beginning inventory)		$128,800	$188,000
6=5+1	Total (including beginning inventory)		$166,100	$248,100
7	Less: Sales (net)			$169,300
8=6-7	Ending inventory at retail			$78,800
	Cost-to-retail ratio =( Cost price of purchases )/(Retail price of purchases)
		=128,800/188,000	from above 5.
		=0.685106383
		=68.51%
	Computation of ending inventory at LIFO cost, 2017:
	Ending Inventory at Retail Prices	Layers at Retail Prices	Cost to Retail (Percentage)	Ending Inventory at LIFO Cost
	$78,800	2016 $60,100	62.06%	=60,100 x 62.06% = $37,298.06
		2017 $18,700	68.51%	=18,700 x 68.51% =$12,811.37
			(calculated above)
			Total	$50,109
	Cost-to-retail ratio =( Cost price of purchases )/(Retail price of purchases)
		=37,300/60,100
		=0.62063228
		=62.06%
Notes:	The numerical explanation in 1st column is given just for your understanding , this is not part of solution
Please feel free to ask if anything about above solution in comment section of the question.