Question

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

Inventory, January 1: at retail $25,100; at cost $17,200

Purchases in January: at retail $135,800; at cost $86,906

Freight-in: $9,400

Purchase returns: at retail $2,900; at cost $2,300

Transfers in from suburban branch: at retail $13,100; at cost $7,000

Net markups: $8,000

Net markdowns: $3,900

Inventory losses due to normal breakage, etc.: at retail $500

Sales revenue at retail: $96,900

Sales returns: $2,400

a) Compute the inventory for this department as of January 31, at retail prices.

Ending inventory at retail

b) Compute the ending inventory using lower-of-average-cost-or-market. (Round ratios for computational purposes to 0 decimal places, e.g 78% and final answer to 0 decimal places, e.g. 28,987.)

Ending inventory at lower-of-average-cost-or-market

Answer 1

1) Calculation of ending Inventory at Retail and cost is shown as follows:- (Amts in $)

Particulars	Retail	Cost
Beginning Inventory	25,100	17,200
Purchases	135,800	86,906
Freight-in	-	9,400
Less: Purchase returns	(2,900)	(2,300)
Transfers in from suburban branch	13,100	7,000
Net Markups	8,000	-
Value of goods available for sale	179,100	118,206
Less: Net Markdowns	(3,900)	-
Less: Net Sales revenue (net of sales returns) (96,900-2,400)	(94,500)	-
Less: Inventory losses due to normal breakage	(500)	-
Ending Inventory as of January 31	80,200	118,206

Therefore the ending inventory for this department as of January 31 at retail prices is $80,200.

b) For calculating the ending inventory at lower-of-average-cost-or-market, we need to calculate the cost to retail ratio which is shown as follows:-

Cost to retail ratio = Cost of goods available for sale/retail value of goods available for sale

= $118,206/179,100 = 66%

Ending Inventory at lower of average cost or market = $80,200*$66% = $52,932