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Chapter 9: Question E9-21 (page 480)

Presented below is information related to Ricky Henderson Company. Cost Retail Beginning inventory \( 200,000 \) 280,000 Purchases 1,375,000 2,140,000 Markups 95,000 Markup cancellations 15,000 Markdowns 35,000 Markdown cancellations 5,000 Sales revenue 2,200,000 Instructions Compute the inventory by the conventional retail inventory method.

Short Answer

Expert verified

The inventory by retail inventory method equals $170,100.

Step by step solution

01

Calculation of ending inventory at retail

Ending inventory at retail is calculated as follows:


Cost


Retail

Beginning inventory

$200,000


$280,000

Purchases

1,375,000


2,140,000

Totals

1,575,000


2,420,000

Add: Net markups




Markups


95,000


Markup cancellations

________

15,000

80,000

Totals

1,575,000


2,500,000

Deduct: Net markdowns




Markdowns


35,000


Markdowns cancellations


5,000

30,000

Sales price of goods available



2,470,000

Deduct: Sales (net)



2,200,000

Ending inventory at retail



$270,000

02

Calculation of cost-to-retail ratio

Cost to retail ratio is calculated as follows:

Cost‐to‐RetailRatio=InventoryatCostInventoryatRetail=$1,575,000$2,500,000=63%

03

Calculation of inventory value at cost

Inventory at cost is calculated as follows:

EndingInventoryatCost=InventoryatRetail×Cost‐to‐RetailRatio=$270,000×63%=$170,100

Thus, ending inventory at cost is $170,100.

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Most popular questions from this chapter

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