A retailer has a beginning monthly inventory valued at 80,000 at retail and 52,5
ID: 2791029 • Letter: A
Question
A retailer has a beginning monthly inventory valued at 80,000 at retail and 52,500 at costs. net purchases during the month are 190,000 at retail and 115,000 at costs. transportation charges are 10,500. sales are 225,000. Markdowns and discounts equal 30,000. A physical inventory at the end of the month shows merchandise valued at 15,000 (at retail) on hand. Compute the following:
A Total merchandise available for sale-at cost and at retail
B cost complement
C Ending retail book value of inventory
D stock shortage
E adjusted ending retail book value
F Gross Profit
Explanation / Answer
There are two methods of calculating cost/retail ratio.
1 Conventional method-under this method only marks up are included and marks down are excluded
2Retail method-under this method both mark up and mark down are consider.
In this question calculation is done using second method i.e. Retail method
particulars
cost
retail
Inventory at the beginning of the year
52500
80000
Net purchase
115000
190000
Transportation charges
10500
Cost of goods sold
178000
270000
Cost of retail ratio=178000/270000 =.65926
particulars
cost
retail
Cost of goods available for sale
178000
270000
-30000
-225000
Ending inventory cost to retail ratio
15000×.65926=9888.9
A COST OF GOODS SOLD UNDER RETAIL=
195000×.65926=128555
GROSS PROFIT=195000×(1-.65926)=66445
GROSS PROFIT=195000×(1-.65926)=66445
particulars
cost
retail
Inventory at the beginning of the year
52500
80000
Net purchase
115000
190000
Transportation charges
10500
Cost of goods sold
178000
270000
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