Question 12 BE - Intermediate Accounting (Kieso)

Question

Use the information for Boyne Inc. from BE9-10. Compute ending inventory at cost using the LIFO retail method.

Step-by-Step Solution

Answer

The ending inventory at cost equals $30,033.60.

Calculation of ending inventory at retail

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
Less: Net Markdowns	______	7,000
Total (Excluding beginning inventory)	$120,000	$173,000
Total (Including beginning inventory)	$132,000	$193,000
Less: Sales		147,000
Ending inventory at retail		$46,000

Calculation of cost-to-retail ratio of beginning inventory

The cost-to-retail ratio of beginning inventory is calculated as follows:

$\begin{array}{rcl}\mathrm{Cost} \mathrm{to} \mathrm{retail} \mathrm{ratio} \mathrm{at} \mathrm{begginnig} \mathrm{inventory}& =& \frac{\mathrm{Beginning} \mathrm{inventory} \mathrm{at} \mathrm{cost}}{\mathrm{Beginning} \mathrm{inventory} \mathrm{at} \mathrm{retail}}\times 100\\ & =& \frac{\$12,000}{\$20,000}\times 100\\ & =& 60\%\end{array}$

Calculation of cost-to-retail ratio of total excluding beginning inventory

The cost-to-retail ratio of total excluding beginning inventory is calculated as follows:

$\begin{array}{rcl}\mathrm{Cost} \mathrm{to} \mathrm{retail} \mathrm{ratio} \mathrm{of} \mathrm{excluding} \mathrm{beginning} \mathrm{inventory}& =& \frac{\mathrm{Excluding} \mathrm{Beginning} \mathrm{Inventory} \mathrm{at} \mathrm{Cost}}{\mathrm{Excluding} \mathrm{Beginning} \mathrm{Inventory} \mathrm{at} \mathrm{Retail}}\times 100\\ & =& \frac{\$120,000}{\$173,000}\times 100\\ & =& 69.36\%\end{array}$

Calculation of ending inventory at cost

Ending inventory at retail equals $46,000, which includes $20,000 of beginning inventory and the remaining $26,000 from next purchases. 

 

The ending inventory at cost is calculated as follows: 

Ending Inventory at Retail	Layers at Retail Prices		Cost to Retail Ratio		Ending Inventory at LIFO Cost
$46,000	$20,000	x	60%	=	$12,000
	$26,000	x	69.36%	=	$18,033.60
					$30,033.60

 

Thus, ending inventory at cost equals $30,033.60.