Question

1)Use the retail inventory method to calculate the value of ending inventory for an organisation which has:

An opening inventory at cost of $850,000 and a retail value of $2,100,000.Purchases for the year totalled at cost $650,000 and the retail value of the purchases is $1,000,000.Sales for the year at retail price totalled $2,650,000.Mark-ups of $80,000 and markdowns of $35,000 during the year.

Answer 1

Answer on Question #79835, Economics / Finance

The retail inventory method is used by retailers that resell merchandise to estimate their ending inventory balances. This method is based on the relationship between the cost of merchandise and its retail price. The method is not entirely accurate, and so should be periodically supplemented by a physical inventory count.

The retail inventory method is a quick and easy way to determine an approximate ending inventory balance.

Inventory at cost

850,000 + 650,000 = 1,500,000;

Inventory at retail

2,100,000 + 1,000,000 = 3,100,000;

Inventory markups

3,100,000 + 80,000 = 3,180,000;

Cost Ration

1,500,000 / 3,180,000 = 47%;

Less Sales and Markdowns

3,180,000 - 2,650,000 - 35,000 = 495,000 at retail;

Ending Inventory Value at cost

495,000 x 47% = 232,650.

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