Question

Sheffield Inc. had beginning inventory of $12,000 at cost and $21,500 at retail. Net purchases were $142,872 at cost and $184,000 at retail. Net markups were $9,600, net markdowns were $7,500, and sales revenue was $152,300. Compute ending inventory at cost using the conventional retail method?

Answer 1

Answer:

Ending inventory at cost using the conventional retail method is $46,824

Explanation:

The conventional retail inventory method is the way for retailer to track cost of purchasing and sale prices. In this calculation, it includes markups but exclude markdowns, then results in a lower inventory value.

Sheffield Inc. had beginning inventory of $12,000 at cost and $21,500 at retail, so the ratio of inventory cost and sales prices is 55.81%.

As such, the inventory cost of $184,000 at retail = 55.81% x ($184,000 + $9,600) = $108,048

The ending inventory cost of Sheffield Inc. = beginning inventory of $12,000 + net purchases of $142,872 – inventory cost for sales $108,048 = $46,824