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Chapter 9: Question 6BE (page 475)

Bell, Inc. buys 1,000 computer game CDs from a distributor who is discontinuing those games. The purchase price for the lot is \(8,000. Bell will group the CDs into three price categories for resale, as indicated below. Group No. of CDs Price per CD 1 100 \) 5 2 800 10 3 100 15 Determine the cost per CD for each group, using the relative sales value method

Short Answer

Expert verified

The cost per CD for Group 1 equals $4, Group 2 equals $8,and Group 3 equals$12.

Step by step solution

01

Definition of relative sales value method

Under the relative sales value method, the cost of the inventories purchased in lump-sum purchases is allocated based on relative sales value.

02

Calculation of cost per CD in each lot

The cost per CD is calculated as follows:

Group

Number of CDs

Sales Price Per CD

Total Sales Price

Relative Sales Price

Total Cost

Cost Allocated to Group

Cost Per Lot

1

100

$5

$500

5/100

$8,000

$400

$4

2

800

10

$8,000

80/100

8,000

6,400

8

3

100

15

$1,500

15/100

8,000

1,200

12

Total

$10,000

$8,000

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Most popular questions from this chapter

Kemper Company signed a long-term noncancelable purchase commitment with a major supplier to purchase raw materials in 2018 at a cost of \(1,000,000. At December 31, 2017, the raw materials to be purchased have a market value of \)950,000. Prepare any necessary December 31, 2017, entry.

GROUPWORK (Retail, LIFO Retail, and Inventory Shortage) Late in 2014, Joan Seceda and four other investors took the chain of Becker Department Stores private, and the company has just completed its third year of operations under the ownership of the investment group. Andrea Selig, controller of Becker Department Stores, is in the process of preparing the year-end financial statements. Based on the preliminary financial statements, Seceda has expressed concern over inventory shortages, and she has asked Selig to determine whether an abnormal amount of theft and breakage has occurred. The accounting records of Becker Department Stores contain the following amounts on November 30, 2017, the end of the fiscal year. Cost Retail Beginning inventory \( 68,000 \)100,000 Purchases 255,000 400,000 Net markups 50,000 Net markdowns 110,000 Sales revenue 320,000 According to the November 30, 2017, physical inventory, the actual inventory at retail is $115,000. Instructions (a) Describe the circumstances under which the retail inventory method would be applied and the advantages of using the retail inventory method. (b) Assuming that prices have been stable, calculate the value, at cost, of Becker Department Stores’ ending inventory using the last-in, first-out (LIFO) retail method. Be sure to furnish supporting calculations. Problems 487 488 Chapter 9 Inventories: Additional Valuation Issues (c) Estimate the amount of shortage, at retail, that has occurred at Becker Department Stores during the year ended November 30, 2017. (d) Complications in the retail method can be caused by such items as (1) freight-in costs, (2) purchase returns and allowances, (3) sales returns and allowances, and (4) employee discounts. Explain how each of these four special items is handled in the retail inventory method.

What conditions must exist for the retail inventory method to provide valid results?

Fuque Inc. uses the retail inventory method to estimate ending inventory for its monthly financial statements. The following data pertain to a single department for the month of October 2018. Inventory, October 1, 2018 At cost \( 52,000 At retail 78,000 Purchases (exclusive of freight and returns) At cost 272,000 At retail 423,000 Freight-in 16,600 Purchase returns At cost 5,600 At retail 8,000 Markups 9,000 Markup cancellations 2,000 Markdowns (net) 3,600 Normal spoilage and breakage 10,000 Sales revenue 390,000 Instructions (a) Using the conventional retail method, prepare a schedule computing estimated lower-of-cost-or-market inventory for October 31, 2018. (b) A department store using the conventional retail inventory method estimates the cost of its ending inventory as \)60,000. An accurate physical count reveals only $47,000 of inventory at lower-of-cost-or-market. List the factors that may have caused the difference between the computed inventory and the physical count.

Boyne Inc. had beginning inventory of \(12,000 at cost and \)20,000 at retail. Net purchases were \(120,000 at cost and \)170,000 at retail. Net markups were \(10,000, net markdowns were \)7,000, and sales revenue was $147,000. Compute ending inventory at cost using the conventional retail method
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