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

To compute the ending inventory at cost using the conventional retail method, you need to calculate the cost-to-retail ratio which gives the cost as $9,357.84

Step-by-step explanation:

To compute the ending inventory at cost using the conventional retail method, you need to calculate the cost-to-retail ratio. The cost-to-retail ratio is determined by dividing the total cost of goods available for sale by the total retail value of goods available for sale. In this case, the total cost of goods available for sale is the beginning inventory, net purchases, net markups, and net markdowns. The total retail value of goods available for sale is the beginning inventory, net purchases, net markups, and net markdowns plus the sales revenue.

First, calculate the total cost of goods available for sale:

• Beginning inventory at cost: $12,000
• Net purchases at cost: $142,872
• Net markups: $9,600
• Net markdowns: $7,500
• Total cost of goods available for sale: $12,000 + $142,872 + $9,600 - $7,500 = $157,972

Next, calculate the total retail value of goods available for sale:

• Beginning inventory at retail: $21,500
• Net purchases at retail: $184,000
• Net markups: $9,600
• Net markdowns: $7,500
• Sales revenue: $152,300
• Total retail value of goods available for sale: $21,500 + $184,000 + $9,600 - $7,500 + $152,300 = $360,900

Finally, calculate the ending inventory at cost using the cost-to-retail ratio:

• Cost-to-retail ratio = Total cost of goods available for sale / Total retail value of goods available for sale
• Ending inventory at cost = Cost-to-retail ratio x Ending inventory at retail
• Ending inventory at cost = ($157,972 / $360,900) x $21,500 = $9,357.84 (rounded to the nearest dollar)

Answer 2

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

Step-by-step 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