The ending inventory using conventional retail inventory method is $170,100.
Ricky Henderson Company Ending inventory
Cost Retail
Beginning inventory $200,000 $280,000
Add Purchases <u>$1,375,000</u> <u> $2,140,000</u>
Total $1,575,000 $2,420,000
Markups $95,000
Markup cancellations (<u>$15,000)</u>
Net markup <u>$80,000</u>
($95,000-$15,000)
Total $1,575,000 $2,500,000
($2,420,000+$80,000=$2,500,000)
Markdowns $35,000
Markdown cancellations <u> ($5,000) </u>
Net markdown <u> ($30,000)</u>
($35,000-$5,000)
Sales price of goods available $2,470,000
($2,500,000-$30,000)
Less Sales revenue (<u>$2,200,000)</u>
Ending inventory at retail $270,000
($2,470,000-$2,200,000)
Second step is to calculate the Cost-to-retail ratio using this formula
Cost-to-retail ratio=Cost of goods sold available/Retail price of goods available+ Net markup
Let plug in the formula
Cost-to-retail ratio=$1,575,000/($2,420,000+$80,000)
Cost-to-retail ratio=$1,575,000/$2,500,000
Cost-to-retail ratio=0.63
Third step is to calculate the ending inventory at cost (lower of cost or market) using this formula
Ending Inventory at cost =Cost-to-retail ratio× Ending inventory at retail
Let plug in the formula
Ending Inventory at cost=0.63×$270,000
Ending Inventory at cost =$170,100
Inconclusion the ending inventory using conventional retail inventory method is $170,100.
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