Question

Dicer uses the conventional retail method to determine its ending inventory at cost. Assume the beginning inventory at cost (retail) were $260,000 ($396,000), purchases during the current year at cost (retail) were $1,370,000 ($2,200,000), freight-in on these purchases totaled $86,000, sales during the current year totaled $2,000,000, and net markups (markdowns) were $48,000 ($72,000). What is the ending inventory value at cost?

Answer 1

$371,228

Step-by-step explanation:

Cost = Beginning inventory + purchases + freight

= $260,000 + $1,370,000 + $86,000

= $1,716,000

Retail = Beginning inventory + purchases + mark-up

= $396,000 + $2,200,000 + $48,000

= $2,644,000

Closing (retail) = Retail - markdown - sales

= $2,644,000 - $72,000 - $2,000,000

= $572,000

Cost to retail ratio = Cost ÷ Retail

= $1,716,000 ÷ $2,644,000

= 0.649017

Therefore,

Ending inventory value at cost = Closing (retail) × Cost to retail ratio

= $572,000 × 0.649

= $371,228