poration uses a periodic inventory system and the retail inventory method to est

Question

poration uses a periodic inventory system and the retail inventory method to estimate ending inventory and cost of goods sold. The following data are available for the month of September 2018 Cost Retail Beginning inventory 21,000 $39,000 Net purchases Net markups Net markdowns Net sales 10,500 4,100 1,100 The company used the average cost flow method and estimated inventory at the end of September to be $16,327.50. If the company had used the LIFO cost flow method, the cost-to-retail percentage would have been 50%. Required: Compute net purchases at retail and net sales for the month of September. Net purchases at retail Net sales

Explanation / Answer

LIFO cost to retail percentage = Net purchases at cost/Retail Value of (Net purchases+Net markups- Net markdowns)

50% = $10,500/Retail Value of (Net purchases+Net markups- Net markdowns)

Retail Value of (Net purchases+Net markups- Net markdowns) = $10,500/50% = $21,000

Net purchases at retail+Net markups- Net markdowns = $21,000

Net purchases at retail+$4,100-$1,100 = $21,000

Net purchases at retail = $21,000-$4,100+$1,100 = $18,000

Average cost flow Method

Calculation of cost retail ratio = Cost of goods available for sale/Goods available for sale at retail

= (Beg Inven+Net Purchases)/(Beg Inven+Net Purchases+Markups-Markdowns)

= ($21,000+$10,500)/($39,000+$18,000+$4,100-$1,100)

= $31,500/$60,000 = 0.525 or 52.5%

Ending inventory at retail = Ending Inventory at cost/Cost-Retail ratio

= $16,327.50/52.5% = $31,100

Net Sales at Retail = Goods available for sale at retail - Ending inventory at retail

= $60,000 - $31,100 = $28,900

Net purchases at retail $18,000 Net sales $28,900

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