The records of Cullumber’s Boutique report the following data for the month of April. Sales revenue $106,300 Purchases (at cost) $51,500 Sales returns 2,100 Purchases (at sales price) 88,500 Markups 10,100 Purchase returns (at cost) 2,100 Markup cancellations 1,700 Purchase returns (at sales price) 3,000 Markdowns 9,800 Beginning inventory (at cost) 17,564 Markdown cancellations 2,900 Beginning inventory (at sales price) 42,500 Freight on purchases 2,600. Compute the ending inventory by the conventional retail inventory method.

Answer:

the answer is in the explanation

Explanation:

particulars                                                 cost                           retail

beginning inventory                            $17,564.00               $42,500.00

purchases                                            $51,500.00               $88,500.00

purchases returns                              $-2,100.00               $ -3,000.00

freight on purchsases                        $2,600.00  

total                                                     $69,564.00                              $1,28,000.00

(+) markups                                                                                  $10,100.00

(-)markup cancellation                                                              $ -1,700.00

COST OF GOODS AVAILABLE           $69,564.00                 $1,36,400.00

FOR SALE

(+) mark downs                                                                               $-9,800.00

(-) markdown cancellations                                                 $2,900.00

sale price of goods available            $69,564.00             $1,29,500.00

for sale(A)

(-) net sales($106300-$2100)(B)                                           104200

ending inventory at retail price                                     $25,300.00

(A-B)  

ENDING INVENTORY BY CONVENTIONAL RETAIL INVENTORY METHOD  

COST OT RETAIL RATIO=             69567/136400*100          51%

ENDING INVENTORY=                    25300*51%               $12,903.00

ENDING INVENTORY AT LIFO RETAIL INVENTORY METHOD    

                                           COST(A)  RETAIL PRICE(B)  COST TO RETAIL

                                                                                               RATIO(A/B)

BEGINNING INVENTORY  17564          42500                       41%

COST OF GOODS             69564         136400                      51%

AVAILABLE FOR SALE

ENDING INVENTORY      LAYERS AT    COST TO        ENDING LIFO

PRICE                             RETAIL PRICE     RETAIL          RETAIL

                                                                      RATIO           COST

                                                (A)                   (B)                 (A)*(B)

$25,300.00        OPENING   $ 42,500.00    41%               17425

                            CLOSING   $ -17,200.00    51%              -8772

                                               $ 25,300.00                          8653

ENDING INVENTORY AT LIFO RETAIL INVENTORY METHOD=$8653

Final answer:

The estimated ending inventory for Cullumber’s Boutique using the conventional retail inventory method is approximately $15,171. This is calculated by adjusting the beginning inventory at retail price, computing the cost-to-retail ratio, and applying it to the ending inventory at the retail price.

Explanation:

To compute the ending inventory using the conventional retail inventory method, we first need to adjust the beginning and ending inventory to account for the markups, markdowns, and returns.

Firstly, we calculate the adjusted beginning inventory by taking the beginning inventory at the retail price and subtracting markdowns, markdown cancellations, and adding markups and markup cancellations:

• Adjusted beginning inventory at retail price = $42,500 - $9,800 + $2,900 + $10,100 - $1,700 = $44,000

Next, we add the net purchases at the retail price to the adjusted beginning inventory to determine the Goods Available for Sale at retail price:

• Net purchases = Purchases (at sales price) + Freight on purchases - Purchase returns (at sales price) = $88,500 + $2,600 - $3,000 = $88,100
• Goods Available for Sale at retail price = Adjusted beginning inventory + Net purchases = $44,000 + $88,100 = $132,100

Afterward, we subtract the sales and sales returns at retail price to get the ending inventory at the retail price:

• Ending inventory at retail price = Goods Available for Sale at retail - Sales Revenue + Sales returns = $132,100 - $106,300 + $2,100 = $27,900

Lastly, to convert the ending inventory from retail price to cost, we use the cost-to-retail ratio:

• Cost-to-retail ratio = (Beginning Inventory at cost + Purchases at cost + Freight on purchases - Purchase returns at cost) / (Beginning Inventory at retail + Purchases at retail - Purchase returns at retail)
• Cost-to-retail ratio = ($17,564 + $51,500 + $2,600 - $2,100) / ($42,500 + $88,500 - $3,000) = $69,564 / $128,000 ≈ 0.5435
• Ending inventory at cost = Ending inventory at retail price × Cost-to-retail ratio = $27,900 × 0.5435 ≈ $15,171

The estimated ending inventory at cost using the conventional retail inventory method is approximately $15,171.

Learn more about Conventional Retail Inventory Method here:

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