Question

Retail Inventory Method

Harmes Company is a clothing store that uses the retail inventory method. The following information relates to its operations during 2016:

	Cost	Retail
Inventory, January 1	$29,000	$40,200
Purchases	67,500	100,100
Markups (net)	—	2,200
Markdowns (net)	—	700
Sales	—	88,400

Required:

1. Compute the ending inventory by the retail inventory method for the following cost flow assumption: FIFO. Round the cost-to-retail ratio to three decimal places. If necessary, round dollar amounts to the nearest whole dollar.

HARMES COMPANY
Calculation of ending inventory by retail inventory method
FIFO 2016
	Cost	Retail
	$	$
	$	$
	$	$
		$
	$

2. Compute the ending inventory by the retail inventory method for the following cost flow assumption: Average cost. Round the cost-to-retail ratio to three decimal places. If necessary, round dollar amounts to the nearest whole dollar.

HARMES COMPANY
Calculation of ending inventory by retail inventory method
Average Cost 2016
	Cost	Retail
	$	$
	$	$
		$
	$

3. Compute the ending inventory by the retail inventory method for the following cost flow assumption: LIFO. Round the cost-to-retail ratio to three decimal places. If necessary, round dollar amounts to the nearest whole dollar.

HARMES COMPANY
Calculation of ending inventory by retail inventory method
LIFO 2016
	Cost	Retail
	$	$
		$
	$	$
		$
Ending inventory at LIFO cost
Beginning layer (as stated in data)	$29,000
New layer
Total	$

4. Compute the ending inventory by the retail inventory method for the following cost flow assumption: Lower of cost or market (based on average cost). Round the cost-to-retail ratio to three decimal places. If necessary, round dollar amounts to the nearest whole dollar.

HARMES COMPANY
Calculation of ending inventory by retail inventory method
Lower of Cost or Market (based on average cost) 2016
	Cost	Retail
	$	$
	$	$
		$
	$

Answer 1

Calculation of ending inventory of Harmes Company
Particulars	Cost $	Retail value $	Cost to Retail %	Retail	FIFO	Average costs	LIFO	Lower of avg cost or market
	Given	Given	Cost / Retail		Purchases %	COGS %	Opening stock %
Beginning inventory	29,000	40,200	72%	29,000	29,000	29,000	29,000	29,000
Purchases	67,500	100,100	67%	67,500	67,500	67,500	67,500	67,500
Less : Return to vendors	-	-		-	-	-	-	-
Goods available for sale	96,500	140,300	69%	96,500	96,500	96,500	96,500	96,500
Add : Mark ups	-	2,200		-	-	-	-	-
Less: Mark downs	-	700		-	-	-	-	-
	96,500	141,000	68%	96,500	96,500	96,500	96,500	96,500
Less : Sales net of returns		88,400		60,501	60,501	60,803	63,771	60,803
				($88400*68%)	($88400*67%)	($88400*69%)	($88400*72%)	Lower of $ 60803 and $ 60501
Ending inventory				35,999	35,999	35,697	32,729	35,697