Question

LeMay Department Store uses the retail inventory method to estimate ending inventory for its monthly financial statements. The following data pertain to one of its largest departments for the month of March 2021: - Cost Retail Beginning inventory $ 40,000 $ 60,000 Purchases 207,000 400,000 Freight-in 14,488 Purchase returns 4,000 6,000 Net markups 5,800 Net markdowns 3,500 Normal breakage 6,000 Net sales 280,000 Employee discounts 1,800 Sales are recorded net of employee discounts. Required: 1. Compute estimated ending inventory and cost of goods sold for March applying the conventional retail method

Answer 1

Answer:

Ending inventory at cost:  95,084  

Cost of goods sold:         162,404  

Explanation:

                                   Cost Retail

Beginning Inventory  40,000     60,000  

Plus: Net Purchases  207,000  400,000  

Freight-in                     14,488  

Less: Purchase returns    (4,000)     (6,000)

Plus: Net markups       5,800  

Less: Net markdowns      (3,500)

Goods available for sale  257,488  456,300  

Less: Normal breakage       (6,000)

Net Sales                           (280,000)

Employee discounts                 (1,800)

Ending inventory at retail           168,500  

We compare the goods available against the retail to get a ratio for conversion:

Cost-to-retail percentage  257,488/ 456,300 = 56.43%

Then we use it to calcualte ending invnetory:

Ending inventory at cost 168,500 x 56.43% = 95,084  

Last, we subtract ending inventory for available goods to get COGS:

Cost of goods sold          257,488 - 95,084 = 162,404