Question 10BE - Intermediate Accounting (Kieso)

Question

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

Step-by-Step Solution

Answer

The ending inventory at cost equals $33,360

Inventory value at retail is calculated as follows:

	Cost	Retail
Beginning inventory	$12,000	$20,000
Add: Net Purchases	120,000	170,000
Add: Net Markups	________	10,000
Totals	$132,000	$200,000
Less: Net Markdowns		7,000
Less: Sales		147,000
Ending inventory at retail		$46,000

 

The cost-to-retail ratio is calculated as follows:

$\begin{array}{rcl}\mathrm{Cost} \mathrm{to} \mathrm{retail}& =& \frac{\mathrm{Inventory} \mathrm{at} \mathrm{cost}}{\mathrm{Inventory} \mathrm{at} \mathrm{retail}}\times 100\\ & =& \frac{\$132,000}{\$200,000}\times 100\\ & =& 66\%\end{array}$

The ending inventory at cost is calculated as follows:

$\begin{array}{rcl}\mathrm{Ending} \mathrm{inventory} \mathrm{at} \mathrm{cost}& =& \mathrm{Ending} \mathrm{inventory} \mathrm{at} \mathrm{retail}\times \mathrm{Cost} \mathrm{to} \mathrm{retail} \mathrm{ratio}\\ & =& \$46,000\times 66\%\\ & =& \$30,360\end{array}$