In: Accounting
Novak Inc. uses the retail inventory method to estimate ending
inventory for its monthly financial statements. The following data
pertain to a single department for the month of October
2021.
Inventory, October 1, 2021 | ||
At cost | $51,800 | |
At retail | 76,700 | |
Purchases (exclusive of freight and returns) | ||
At cost | 241,978 | |
At retail | 424,300 | |
Freight-in | 16,500 | |
Purchase returns | ||
At cost | 5,400 | |
At retail | 8,100 | |
Markups | 8,900 | |
Markup cancellations | 2,000 | |
Markdowns (net) | 3,500 | |
Normal spoilage and breakage | 9,900 | |
Sales revenue | 392,600 |
(a) Using the conventional retail method, prepare
a schedule computing estimated lower-of-cost-or-market inventory
for October 31, 2021. (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-cost-or-market |
$ |
Ending Inventory using conventional retail inventory method, at lower of cost or market |
$ 57,218.00 |
Cost |
Retail |
Cost to Retail Ratio |
Working |
|
Beginning Inventory |
$ 51,800.00 |
$ 76,700.00 |
||
Plus: Purchases |
$ 241,978.00 |
$ 424,300.00 |
||
Purchase Returns |
$ (5,400.00) |
$ (8,100.00) |
||
Freight In |
$ 16,500.00 |
|||
Net Markups |
$ 6,900.00 |
|||
$ 304,878.00 |
$ 499,800.00 |
|||
Less: Net MarkDowns |
$ 3,500.00 |
|||
Goods Available for sale |
$ 304,878.00 |
$ 496,300.00 |
||
Cost to retail Percentage |
61.00% |
( 304878 / 499800 ) x 100 |
||
Less: Normal Breakage |
$ - |
$ 9,900.00 |
||
Less: Net Sales |
$ 392,600.00 |
|||
Estimated ending inventory at retail |
$ 93,800.00 |
496300 - 392600 |
||
Estimated ending Inventory at cost |
$ 57,218.00 ANSWER |
93800 x 61% |