Question

The following FCL Corporation inventory information is available for the year ended December 31:

1) Cost
2) Retail
Beginning inventory at 1/1
1) $35,000
2) $100,000
Net purchases
1) 55,000
2) 110,000
Net markups
2) 15,000
Net markdowns
2) 25,000
Net sales
2) 150,000
The December 31 ending inventory at cost using the conventional retail inventory method equals
a) $17,500
b) $20,000
c) $27,500
d) $50,000

Answer 1

The December 31 ending inventory at cost using the conventional retail inventory method is $25,714.

Step-by-step explanation:

To calculate the December 31 ending inventory at cost using the conventional retail inventory method, we need to calculate the cost-to-retail ratio. The cost-to-retail ratio is calculated by dividing the cost of inventory by the retail price of inventory.

Given the inventory information provided:

1. Beginning inventory: Cost = $35,000, Retail = $100,000
2. Net purchases: Cost = $55,000, Retail = $110,000
3. Net markups: Retail = $15,000
4. Net markdowns: Retail = $25,000
5. Net sales: Retail = $150,000

To calculate the cost-to-retail ratio, we can use the formula: Cost-to-retail ratio = (Beginning inventory cost + Net purchases cost) / (Beginning inventory retail + Net purchases retail - Net markups + Net markdowns - Net sales)

Plugging in the values, we get: Cost-to-retail ratio = ($35,000 + $55,000) / ($100,000 + $110,000 - $15,000 + $25,000 - $150,000) = $90,000 / $70,000 = 1.2857

Finally, we can calculate the December 31 ending inventory at cost by multiplying the cost-to-retail ratio by the retail value of the ending inventory.

Given that the retail value of the ending inventory is $20,000, the December 31 ending inventory at cost using the conventional retail inventory method is $20,000 x 1.2857 = $25,714.28. Rounded to the nearest dollar, the answer is $25,714.