Question

Dicer uses the conventional retail method to determine its ending inventory at cost. Assume the beginning inventory at cost (retail) were $390,000 ($594,000), purchases during the current year at cost (retail) were $2,055,000 ($3,300,000), freight-in on these purchases totaled $129,000, sales during the current year totaled $3,000,000, and net markups (markdowns) were $72,000 ($108,000). What is the ending inventory value at cost?

Answer 1

Answer:

$556,842

Explanation:

Cost:

Merchandise available for sale:

= Beginning inventory + Purchases + Fright-in

= $390,000  + $2,055,000 + $129,000

= $2,574,000

Retail:

Merchandise available for sale:

= Beginning inventory + Purchases + Markups

= $594,000  + $3,300,000 + $72,000

= $3,966,000

Retail total = $3,966,000

Ending inventory at retail = Retail total - Markdowns - Net sales

                                          = $3,966,000 - $108,000 - $3,000,000

                                          = $858,000

Cost to retail ratio = $2,574,000 ÷ ($3,000,000 + $858,000 )

                              = $2,574,000 ÷ $3,858,000

                              = $64.90%

Ending inventory at retail = $858,000

And,

Cost o retail ratio = 64.90%

Therefore,

Ending inventory at cost = $858,000 × 64.90%

                                          = $556,842