Question

Blue Company began operations on January 1, 2019, adopting the conventional retail inventory system. None of the company’s merchandise was marked down in 2019 and, because there was no beginning inventory, its ending inventory for 2019 of $38,200 would have been the same under either the conventional retail system or the LIFO retail system.

On December 31, 2020, the store management considers adopting the LIFO retail system and desires to know how the December 31, 2020, 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, 2020		$38,200			$59,300
Markdowns (net)					12,900
Markups (net)					22,200
Purchases (net)		129,300			178,900
Sales (net)					169,700

Determine the cost of the 2020 ending inventory under both (a) the conventional retail method and (b) the LIFO retail method.

Answer 1

(a)	Conventional Retail Method
		Cost	Retail
	Inventory, January 1, 2020	$38,200	$59,300
	Purchases (net)	$129,300	$178,900
		$167,500	$238,200
	Add: Net markups		$22,200
	Totals	$167,500	$260,400
	Deduct: Net markdowns		$12,900
	Sales price of goods available		$247,500
	Deduct: Sales (net)		$169,700
	Ending inventory at retail		$77,800
	Cost-to-retail ratio	64.32%
	($167,500/$260,400)
	Ending inventory at cost	$50,041
	($77,800 x 64.32%)
(b)	LIFO Retail Method
		Cost	Retail
	Inventory, January 1, 2020	$38,200	$59,300
	Purchases (net)	$129,300	$178,900
	Add: Net markups		$22,200
	Deduct: Net markdowns		$12,900
	Total (excluding beginning inventory)	$129,300	$188,200
	Total (including beginning inventory)	$167,500	$247,500
	Deduct: Sales (net)		$169,700
	Ending inventory at retail		$77,800
	Cost-to-retail ratio	68.70%
	($129,300/$188,200)
	Ending Inventory at Retail Prices	Layers at Retail Prices	Cost to Retail (Percentage)	Ending Inventory at LIFO Cost
	$77,800	$59,300	64.42%	$38,201
		$18,500	68.70%	$12,710
				$50,911
	Note:
	The cost-to-retail ratio considers for two-digit after the decimal.