Exercise 9-20 Presented below is information related to Pronghorn Company. Cost

Question

Exercise 9-20

Presented below is information related to Pronghorn Company.

Cost                                     Retail

Beginning inventory                       $ 56,950                             $94,100

Purchases (net)                                121,490                              191,500

Net markups                                                                                  10,935

Net markdowns                                                                            26,431

Sales revenue                                                                                186,270

              

a)Compute the ending inventory at retail.

Ending inventory                            

$

              

b)Compute a cost-to-retail percentage under the following conditions. (Round ratios to 2 decimal places, e.g. 78.74%)

Cost-to-retail percentage

(1)Excluding both markups and markdowns.                                    %__________

(2)Excluding markups but including markdowns.                             %__________

(3)Excluding markdowns but including markups.                             %__________

(4)Including both markdowns and markups.                                    %__________

              

c)Which of the methods in (b) above does the following?

(1)Provides the most conservative estimate of ending inventory.                            

(2)Provides an approximation of lower-of-cost-or-market.                        

(3)Is used in the conventional retail method.                   

              

d)Compute ending inventory at lower-of-cost-or-market. (Round ratio to 2 decimal places, e.g. 78.74% and final answer to 0 decimal places, e.g. 6,225.)

Ending inventory $_______

e)Compute cost of goods sold based on (d). (Round answer to 0 decimal places, e.g. 6,225.)

Cost of goods sold $_______

f)Compute gross margin based on (d). (Round answer to 0 decimal places, e.g. 6,225.)

Gross margin $______

Explanation / Answer

(a) Ending inventory = $83,834

working:

  

(b)

(c)

1. The ratio which includes only markdowns and not markups provides the most conservative estimate of the ending inventory.

2. The ratio which excludes both markups and mark downs provides an approximation of lower-of-cost-or-market value.

3.The ratio which includes only markups is used in conventional retails method.

(d)

Retail value of inventory = $83,834

Cost value = 62.48% of $83,834 = $52,379

(e)

Cost of goods sold = Goods available for sale - ending inventory = $178,440 - $52,379 = $126,061.

(f)

Gross margin = Sales - Cost of goods sold = $186,270 - $126,061 = $60,209.

Retail Beginning inventory 94100 Purchases 191500 Goods available for sale 285600 Sales -186270 Markups 10935 Markdowns -26431 Ending inventory 83834

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