Question

Presented below is information related to Ricky Henderson Company.

Answer 1

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                $1,375,000                               $2,140,000

Total                                 $1,575,000                              $2,420,000                                                    

Markups                                                      $95,000

Markup cancellations                                ($15,000)

Net markup                                                                          $80,000

($95,000-$15,000)

Total                                 $1,575,000                                 $2,500,000

($2,420,000+$80,000=$2,500,000)

Markdowns                                                     $35,000

Markdown cancellations                               ($5,000)  

Net markdown                                                                       ($30,000)

($35,000-$5,000)

Sales price of goods available                                             $2,470,000

($2,500,000-$30,000)

Less Sales revenue                                                               ($2,200,000)

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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