Question

Cloverdale, Inc., uses the conventional retail inventory method to account for inventory. The following information relates to current year's operations: Cost Retail Beginning inventory and purchases $ 324,000 $ 555,000 Net markups 45,000 Net markdowns 35,000 Net sales 510,000 What amount should be reported as cost of goods sold for the year? (A) $291,892.(B) $294,300.(C) $292,460.

Answer 1

Answer:

The correct answer is B

Explanation:

Retail

= Beginnning inventory and purchases + Net Markups

= $555,000 + $45,000

= $600,000

Goods available for sale = $600,000 - Net Markdowns

= $600,000 - $35,000

= $565,000

Estimated ending inventory at Retail = Goods available for sale - Net Sales

= $565,000 - $510,000

= $55,000

Cost

Beginnning inventory and purchases = $324,000

Estimated ending inventory at Cost = Estimated ending inventory at Retail × 54%

= $55,000 ×  54%

= $29,700

Estimated Cost of goods sold =  Beginnning inventory and purchases - Estimated ending inventory at Cost

= $324,000 - $29,700

= $294,300

Working Note:

Cost to Retail percentage = Cost / Retail

= $324,000 / $600,000

= 54%