Chapter 9: Question 17Q (page 474)

(a) Determine the ending inventory under the conventional retail method for the furniture department of Mayron Department Stores from the following data. Cost Retail Inventory, Jan. 1 $ 149,000 $ 283,500 Purchases 1,400,000 2,160,000 Freight-in 70,000 Markups, net 92,000 Markdowns, net 48,000 Sales revenue 2,175,000 (b) If the results of a physical inventory indicated an inventory at retail of $295,000, what inferences would you draw?

Short Answer

Expert verified

(a) Ending inventory at cost equals $199,531.25.

(b) Ending inventory at retail is $312,500, whereas, per the physical count, it is $295,000. This indicates that inventory at retail is worth $17,500, and inventory at a cost worth $11,173.75 is not accounted for.

Step by step solution

Calculation of ending inventory at retail

Ending inventory at retail is calculated as follows:

	Cost	Retail
Beginning inventory	$149000	$283500
Purchases	1,400,000	2,160,000
Freight-in	70,000	0
Total	1,619,000	2,443,500
Add: Markups, net		92000
	$1619000	2,535,500
Less: Markdowns, net		48000
		2,487,500
Less: Sales revenue		2,175000
Ending inventory, at retail		$312,500

Calculation of ratio of cost to selling price

The ratio of cost to selling price is calculated as follows:

$\begin{array}{rcl} R a t i o o f C o s t t o S e l l i n g P r i c e & = & \frac{I n v e n t o r y a t C o s t}{I n v e n t o r y a t R e t a i l} \\ = & \frac{$ 1, 619, 000}{$ 2, 535, 500} \\ = & 63.85 % \end{array}$

Calculation of ending inventory at cost

The ending inventory at cost is calculated as follows:

$\begin{array}{rcl} E n d i n g i n v e n t o r y a t \cos t & = & I n v e n t o r y a t R e t a i l \times R a t i o o f C o s t t o S e l l i n g P r i c e \\ = & $ 312, 500 \times 63.85 % \\ = & $ 199, 531.25 \end{array}$

Calculation of Not accounted inventory at retail

Not accounted inventory at retail is calculated as follows:

$\begin{array}{rcl} N o t A c c o u n t e d I n v e n t o r y a t R e t a i l & = & E n d i n g I n v e n t o r y a t R e t a i l - P h y s i c a l E n d i n g I n v e n t o r y a t r e t a i l \\ = & $ 312, 500 - $ 295, 000 \\ = & $ 17, 500 \end{array}$

Calculation of Not accounted inventory at cost

Not accounted inventory at cost is calculated as follows:

$\begin{array}{rcl} N o t a c c o u n t e d I n v e n t o r y a t \cos t & = & N o t a c c o u n t e d i n v e n t o r y a t R e t a i l \times R a t i o o f C o s t o f S e l l i n g P r i c e \\ = & $ 17, 500 \times 63.85 % \\ = & $ 11, 173.75 \end{array}$

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Short Answer

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Calculation of ending inventory at retail

Calculation of ratio of cost to selling price

Calculation of ending inventory at cost

Calculation of Not accounted inventory at retail

Calculation of Not accounted inventory at cost

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