The records of Ellen’s Boutique report the following data for the month of April

Question

The records of Ellen’s Boutique report the following data for the month of April. Sales revenue $96,800, Purchases (at cost) $58,600, Sales returns 2,300, Purchases (at sales price) 96,200, Markups 12,100, Purchase returns (at cost) 2,300, Markup cancellations 1,700, Purchase returns (at sales price) 3,800, Markdowns 9,100, Beginning inventory (at cost) 43,720, Markdown cancellations 3,200, Beginning inventory (at sales price) 57,700, Freight on purchases 2,700. Compute the ending inventory by the conventional retail inventory method.

Explanation / Answer

Computation of ending inventory by the conventional retail inventory method:

To get the ending inventory at cost, first calculate the cost-to-retail ratio. With the conventional method you calculate the ratio using only markups.

Cost to sales ration = 102,720 / 163,200 = 0.63 = 63% (rounded to one decimal)

62,800 x 63.0% = $39,564 ending inventory at cost

*Note--I rounded the cost-to-retail ration to one decimal If your rounding is different, you will get a different answer.

Details Calculation part Cost Calculation part Sales price Beginning inventory 43,720 57,700 Purchases less purchase returns 58,600 - 2,300 56,300 96,200-3,800 92,400 Add: Freight on purchases 2,700 2,700 Totals 102,720 152,800 Add: Net markups Markups 12,100 Less: Markup cancellations -1,700 10,400 Totals 163,200 Deduct: Net markdowns Markdowns 9,100 Less: Markdowns cancellations -3,200 -5,900 Sales price of goods available 157,300 Deduct: Sales Sales revenue 96,800 Less: sales returns -2,300 -94,500 Ending inventory at Sales price 62,800

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