Question

Boxer Inc. uses the conventional retail method to determine its ending inventory at cost. Assume the beginning inventory at cost (retail) were $196,500 ($297,000), purchases during the current year at cost (retail) were $1,704,000 ($2,596,800), freight-in on these purchases totaled $79,500, sales during the current year totaled $2,333,000, and net markups were $207,000. What is the ending inventory value at cost?

Answer 1

The ending inventory value at cost for Boxer Inc., calculated using the conventional retail method and the provided data, is $490,218.68.

Step-by-step explanation:

To calculate the ending inventory value at cost using the conventional retail method, you need to calculate the cost-to-retail ratio first, and then apply that ratio to the ending inventory at retail prices to find the ending inventory at cost.

Step 1: Calculate Cost-to-Retail Ratio

First, add the freight-in to the purchases at cost to find the total cost of goods available for sale:

Beginning inventory at cost + Purchases at cost + Freight-in = $196,500 + $1,704,000 + $79,500 = $1,980,000 (total cost).

Now calculate the total retail value taking into account net markups:

Beginning inventory at retail + Purchases at retail + Net markups = $297,000 + $2,596,800 + $207,000 = $3,100,800 (total retail).

Next, calculate the cost-to-retail ratio:

Cost-to-Retail Ratio = Total cost / Total retail = $1,980,000 / $3,100,800 = 0.6386 (or 63.86%).

Step 2: Calculate Ending Inventory at Cost

To get the ending inventory at retail, subtract sales from the total retail:

Ending inventory at retail = Total retail - Sales = $3,100,800 - $2,333,000 = $767,800.

Lastly, apply the cost-to-retail ratio to get the ending inventory at cost:

Ending inventory at cost = Ending inventory at retail x Cost-to-Retail Ratio = $767,800 x 0.6386 = $490,218.68.