LeMay Department Store uses the retail inventory method to estimate ending inven

Question

LeMay Department Store uses the retail inventory method to estimate ending inventory for its monthly financial statements. The following data pertain to one of its largest departments for the month of March 2018:

Sales are recorded net of employee discounts.
Required:
1. Compute estimated ending inventory and cost of goods sold for March applying the conventional retail method.
2. Recompute the cost-to-retail percentage using the average cost method.

Cost Retail Beginning inventory $ 56,000 $ 76,000 Purchases 223,000 416,000 Freight-in 12,352 Purchase returns 7,500 10,000 Net markups 7,400 Net markdowns 5,100 Normal breakage 10,000 Net sales 296,000 Employee discounts 1,800 Required 1Required 2 Compute estimated ending inventory and cost of goods sold for March applying the conventional retail method. Cost-to-Retail Ratio Cost Retail Beginning inventory Plus: Purchases Freight-in Less: Purchase returns Plus: Net markups Less: Net markdowns Goods available for sale 0 Cost-to-retail percentage (conventional retail method) Less: Normal breakage Net sales Employee discounts Estimated ending inventory at retail Estimated ending inventory at cost Estimated cost of goods sold Required 1 Required 2

Explanation / Answer

1 Conventional retail method Cost Retail Cost to retail Ratio Beginning inventory 56000 76000 Purchases 223000 416000 Freight in 12352 Purchase returns 7500 10000 Net markups 7400 298852 509400 58.67% Net mark downs -5100 Goods available for sale 504300 Normal breakage -10000 Employee discounts -1800 Total available for sale 492500 Net sales -296000 Ending inventory at retail 196500 Ending inventory at cost 115287 (196500*58.67%) Cost of goods sold 183565 (298852-115287) 2 Average cost method: Cost Retail Cost to retail Ratio Beginning inventory 56000 76000 Purchases 223000 416000 Freight in 12352 Purchase returns 7500 10000 Net markups 7400 Net mark downs -5100 298852 504300 59.26% Normal breakage -10000 Employee discounts -1800 Total available for sale 492500 Net sales -296000 Ending inventory at retail 196500 Ending inventory at cost 116446 (196500*59.26%) Cost of goods sold 182406 (298852-116446)

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