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 $ 318,500 $ 580,500 Net markups 32,000 Net markdowns 22,000 Net sales 542,000 What amount should be reported as cost of goods sold for the year? Multiple Choice $292,340. $291,890. $293,280. None of these answer choices are correct.

Answer 1

Answer:

$293,280

Explanation:

Retail Inventory method is used to estimate the value of inventory using retail price of the unit of inventory.

As per given data

                                                                 Cost              Retail

Beginning inventory and purchases    $318,500    $580,500

+ Net markups                                                           $32,000

- Net markdowns                                                     $22,000

= Goods Available for sale                    $318,500     $590,500  

- Net sales                                                                  $542,000

= Estimated Ending Inventory

   At retail price                                                         $48,500

 -At Cost                                                $25,220

(48,500x318500/(580,500+32000)                  

Total Cost of Goods Sold                      $293,280

Answer 2

Answer: $293,280

Explanation:

Solving this requires that we find the closing inventory at retail value and subtract it from the inventory cost.

Ending inventory at retail = Retail begining inventory + net markups - net markdowns - sales

= 580,500 +32,000 - 22,000 - 542,000

= $48,500

$48,500 is the ending inventory estimate at retail.

The Cost to Retail percentage is needed to equate the figure above to cost.

At Cost the beginning inventory and purchases was $318,500

At Retail the beginning inventory and purchases was

580,500 + 32,000 = $612,500

Equating them would be,

= 318,500/612,500

= 52%

52% is the ratio therefore 52% of Retail ending inventory is Cost ending inventory.

= 52% * 48,500

= $25,220

Cost of goods sold is Opening inventory and purchases - closing Inventory,

= 318,500 - 25,220

= $293,280

$293,280 should be reported as cost of goods sold for the year.