Question

Dicer uses the conventional retail method to determine its ending inventory at cost. Assume the beginning inventory at cost (retail) were $260,000 ($396,000), purchases during the current year at cost (retail) were $1,370,000 ($2,200,000), freight-in on these purchases totaled $86,000, sales during the current year totaled $2,000,000, and net markups (markdowns) were $48,000 ($72,000). What is the ending inventory value at cost?

Answer 1

Answer:

$371,228

Explanation:

Cost = Beginning inventory + purchases + freight

        = $260,000 + $1,370,000 + $86,000

        = $1,716,000

Retail = Beginning inventory + purchases + mark-up

          = $396,000 + $2,200,000 + $48,000

          = $2,644,000

Closing (retail) = Retail - markdown - sales

                        = $2,644,000 - $72,000 - $2,000,000

                        = $572,000

Cost to retail ratio = Cost ÷ Retail

                              = $1,716,000 ÷ $2,644,000

                              = 0.649017

Therefore,

Ending inventory value at cost = Closing (retail) × Cost to retail ratio

                                                   = $572,000 × 0.649

                                                   = $371,228