Question

San Lorenzo General Store uses a periodic inventory system and the retail inventory method to estimate ending inventory and cost of goods sold. The following data are available for the month of October 2021:
Cost Retail Beginning inventory $ 40,000 $ 55,000
Net purchases 21,425 32,100
Net markups 1,700
Net markdowns 1,050
Net sales 37,000
required
Estimated the average cost of ending inventory and cost of goods sold for october.

Answer 1

Answer:

The average cost of ending inventory is $37,259 and cost of goods sold for october is 24,166

Explanation:

In order to calculate the average cost of ending inventory, we would have to calculate first the cost to retail ratio with the following formula:

cost to retail ratio=Total cost/Total retail

According to the given data, the total  cost=$61,425, and the total retail= $87,100, Hence:

cost to retail ratio=$61,425/$87,100= 70.5%

Also, we have to calculate the ending inventory at retail=$87,100+$1,700-$1,050-$37,00=$52,850

Therefore, the average cost of ending inventory= $52,850×70.5%

                                                                               =$37,259

To calculate the cost of goods sold for october we would have to use the following formula:

cost of goods sold=Beginning inventory+purchases-ending inventory

                              =$40,000+$21,425-$37,259

                              =$24,166