Question

ABC uses the conventional retail method to determine its ending inventory at cost. Assume the beginning inventory at cost (retail) were $393,500 ($594,000), purchases during the current year at cost (retail) were $3,408,000 ($5,193,600), freight-in on these purchases totaled $159,500, sales during the current year totaled $4,666,000, and net markups were $414,000. What is the ending inventory value at cost

Answer 1

Answer:Ending Inventory at Cost= $981,248.40

Step-by-step explanation:

Cost Retail

Beginning inventory $393,500 $594,000

purchases $3,408,000 $5,193,600

freight in $159,500,

net markups $414,000

Total $3,961,000 $6,201,600

Sales $4,666,000

Ending Inventory at Retail:=(Beginning inventory + purchases +net markups - Sales during the current year

594,000 + $5,193,600 + $414,000- $4,666,000, = $1,535,600

Cost to Retail Ratio:( Beginning inventory + purchases+freight in)/ (Beginning inventory + purchases +net markups )

=($393,500 + $3,408,000 +$159,500,) ÷ (594,000 + $5,193,600 + $414,000) =$3,961,000/$6, 201, 600= 0.638= 0.639

Ending Inventory at Cost: Ending Inventory at Retail x Cost to Retail Ratio

$1,535,600 x 0.639 = $981,248.40