Question

Boxer Inc. 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?a. $371,228.b. $378,092.c. $386,804.d. $572,000.

Answer 1

Answer: Option (a) is correct.

Explanation:

Ending inventory at retail:

= Total retail - net sales - markdown

= (Beginning inventory + purchases +  freight-in + markups) - net sales - markdown

= ($396,000 + $2,200,000 + 0 + $48,000) - $2,000,000 - $72,000

= $572,000

Total cost = Beginning inventory + purchases +  freight-in + markups

                = $260,000 + $1,370,000 + $86,000 + 0

                = $1,716,000

Cost to retail ratio:

$=\frac{Total\ cost}{Total\ retail}$

$=\frac{1,716,000}{2,644,000}$

= 0.6490 or 64.9%

Ending inventory at cost:

= Ending inventory at retail × Cost to retail ratio

= $572,000 × 64.9%

= $371,228