Question

Sandhill uses the conventional retail method to determine its ending inventory at cost. Assume the beginning inventory at cost (retail) were $386000 ($590000), purchases during the current year at cost (retail) were $1975000 ($3220000), freight-in on these purchases totaled $125000, sales during the current year totaled $2920000, and net markups (markdowns) were $68000 ($104000). What is the ending inventory value at cost

Answer 1

Answer:

$567,056

Explanation:

Cost :

Merchanidize available for sale

= Beginning inventory + Purchases + Freight in

= $386,000 + $1,975,000 + $125,000

= $2,486,000

Retails:

Merchandize available for sale:

= Beginning inventory + Purchases + Markups

= $590,000 + $3,220,000 + $68,000

= $3,878,000

Ending inventory at retail = Retail total -markdowns - Net sales

= $3,878,000 - $104,000 - $2,920,000

= $854,000

Cost to retail ratio = $2,486,000 ÷ ($2,920,000 + $854,000)

= $2,486,000 ÷ $3,744,000

= 66.40%

Ending inventory at retail = $854,000

And

Cost to retail ratio = 66.40%

Therefore,

Ending inventory at cost = $854,000 × 66.40% = $567,056