Question

Ivanhoe uses the conventional retail method to determine its ending inventory at cost. Assume the beginning inventory at cost (retail) were $392000 ($596000), purchases during the current year at cost (retail) were $2095000 ($3340000), freight-in on these purchases totaled $131000, sales during the current year totaled $3040000, and net markups (markdowns) were $74000 ($110000). What is the ending inventory value at cost

Answer 1

$561,580

Step-by-step explanation

Particulars Cost Retail

Beginning inventory $392,000 $596,000

Add: Purchases $2,095,000 $3,340,000

Add: Freight in $131,000

Add: Net Markups $74,000

Goods available for sale $2,618,000 $4,010,000

Less: Net Markdowns ($110,000)

Less: Sales ($3,040,000)

Estimated Ending inventory at retail $860,000

Cost-to-Retail percentage = Goods available for sale (Cost) / Goods available for sale (Retail)

Cost-to-Retail percentage = $2,618,000 / $4,010,000

Cost-to-Retail percentage = 0.653

Estimated ending inventory at cost = Estimated Ending inventory at retail * Cost-to-Retail percentage

Estimated ending inventory at cost = $860,000 * 0.653

Estimated ending inventory at cost = $561,580