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20 April, 13:47

Kiddie World 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 quarter ending September 30, 2021: Cost Retail Beginning inventory $ 370,000 $ 515,000 Net purchases 890,000 1,280,000 Freight-in 54,000 Net markups 55,000 Net markdowns 25,000 Net sales 1,235,000 Estimate ending inventory and cost of goods sold using the conventional method.

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  1. 20 April, 14:11
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    Ending inventory is $424,045

    Cost of goods sold is $889,955

    Explanation:

    Retail Inventory method is used to estimate the value of inventory using retail price of the unit of inventory.

    As per given data

    Cost Retail

    Beginning inventory $370,000 $515,000

    Net purchases $890,000 $ 1,280,000

    Freight-in $54,000

    Net markups $55,000

    Net markdowns $25,000

    Net sales $1,235,000

    Cost of Purchase = 890,000 + 54,000 = $944,000

    Retail Price of Purchases = Net Purchases Retail + (Net Markup) = $1280,000 + (55,000 - 25,000) = 1,310,000

    Cost to retail Percentage = ($944,000 / $1,310,000) x 100 = 72.06%

    Closing Inventory = Purchases + Net Markup - Sales = $1,280,000 + ($944,000 / $1,310,000) - $1,235,000 = $75,000

    Retail Cost

    Beginning inventory $515,000 $370,000

    Net purchases $75,000 $54,045 ($75,000 x 72.06%)

    Ending Inventory $590,000 $424,045

    Closing Inventory = Opening + Purchases - Closing = $370,000 + (890,000 + 54,000) - 424,045 = $889,955
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