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Retail Inventory Method Uncle Butch's Hunting Supply Shop reports the following information related to inventory: Cost Retail Beginning inventory $35,000 $92,000 Purchases 75,000 200,000 Net additional markups — 15,000 Net markdowns — (22,000) Goods available for sale $110,000 $285,000 Sales (178,000) Ending inventory at retail $107,000 Calculate Uncle Butch's Hunting Supply Shop's ending inventory using the retail inventory method under the LIFO cost flow assumption. Round the cost-to-retail ratio to 3 decimal places.

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Final answer:

The ending inventory for Uncle Butch's Hunting Supply Shop, calculated using the retail inventory method under the LIFO cost flow assumption, is $41,302. This was determined by finding the adjusted cost-to-retail ratio and applying it to the ending inventory at retail.

Step-by-step explanation:

To calculate the ending inventory using the retail inventory method under the LIFO cost flow assumption, we need to follow these steps:

  • Calculate the cost-to-retail ratio.
  • Adjust the cost-to-retail ratio for net markups and markdowns.
  • Apply the adjusted cost-to-retail ratio to the ending inventory at retail to find the ending inventory at cost.

Step 1: Calculate the Initial Cost-to-Retail Ratio

Initial Cost-to-Retail Ratio = (Beginning Inventory Cost + Purchases Cost) / (Beginning Inventory Retail + Purchases Retail)

Initial Cost-to-Retail Ratio = ($35,000 + $75,000) / ($92,000 + $200,000) = $110,000 / $292,000

Initial Cost-to-Retail Ratio = 0.377 (rounded to three decimal places)

Step 2: Adjust for Net Markups and Markdowns

Retail Price After Adjustments = (Beginning Inventory Retail + Purchases Retail + Net Additional Markups - Net Markdowns)

Retail Price After Adjustments = $292,000 + $15,000 - $22,000 = $285,000

Adjusted Cost-to-Retail Ratio = $110,000 / $285,000 = 0.386 (rounded to three decimal places)

Step 3: Calculate Ending Inventory at Cost

Ending Inventory at Cost = Ending Inventory at Retail x Adjusted Cost-to-Retail Ratio

Ending Inventory at Cost = $107,000 x 0.386 = $41,302

Therefore, using the LIFO cost flow assumption, Uncle Butch's Hunting Supply Shop's ending inventory is calculated to be $41,302.

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