Question

Hansard Ltd. estimates its quarterly inventory by the retail inventory method. The following data are available for the quarter ended 30 June 20X7:

 

Required:

1. Prepare a schedule to compute the estimated inventory at 30 June 20X7.

Answer 1

Requirement 1

 

	At cost	At retail
Inventory, 1 June	$ 452,000	$ 672,000
+ Purchases	1,039,200	1,880,000
– Purchase returns and allowances	(18,000)	(32,000)
+ Markups (net) ($244,000 – $76,000)		168,000
Retail value goods available for sale		2,688,000
– Markdowns (net) ($176,000 – $86,000)		(90,000)
Goods available for sale	$ 1,473,200	$2,598,000
– Sales (net of returns: $2,100,000 – $100,000)		(2,000,000)
Inventory, 30 June, at retail		$ 598,000
Inventory, 30 June, at cost: ($598,000 × 55 % cost ratio*)	$ 328,900

 

* Cost ratio = $1,473,200 ÷ $2,688,000 = 55%

 

Since the retail method is an estimate, there is no point in carrying the cost ratio out to more than two significant digits.

* Cost ratio = $1,473,200 ÷ $2,688,000 = 55%

 

Since the retail method is an estimate, there is no point in carrying the cost ratio out to more than two significant digits.