Question:
A company reported the following information regarding its inventory. Beginning inventory: cost is $70,000; retail is $130,000 Net purchases: cost is $65,000; retail is $120,000 Sales at retail: $145,000 The year-end inventory showed $105,000 worth of merchandise available at retail prices. What is the cost of the ending inventory?
Answers:
70000 + 65000 = 135000 Cost
120000+ 130000 = 250000 retail
sales at retail = 145000
250000 - 145000 = 105000 ending inv at retail.
cost of ending inventory will be different according to the costing method used, as follows:
FIFO: 105000 * (65000/120000)
LIFO: 105000 * (70000/130000)
AVE/C : 105000 * ((70/130) + (60/120) / 2)
Depends on how you are moving your inventory. First in First out or what?
Based on the figures you provided, the estimated mark up rate is an average of 85% over cost.
Beginning Inventory:
130,000 - 70,000 = $60,000
60,000/70,000 = 85.7 % Mark-up
Purchases:
$120,000 - 65,000 = $55,000
$55,000/65,000 = 84.6 Mark-up
Using this as a basis, the $145,000 ending inventory at retail prices costs only $56,756 ($145,000/1.85).
Using the formula beginning inventory plus purchases minus ending inventory equals cost of goods sold, the answer is $78,243 or $78,000. ($70,000 + $65,000 - $ 56,756).
To check, divide sales of P145,000 by 1.85. This will give you $78,348 or $78,000, also.
Assuming the FIFO (First In, First Out) method of inventory is used, the $145,000 in sales at retail would use the $130,000 of beginning inventory at retail and $15,000 of purchased inventory at retail. This would leave $105,000 ending inventory at retail. Since all the beginning inventory was used, then ending inventory consists only of the purchased amounts. The cost of the purchased inventory is 54.17% of retail value ($65,000/$120,000). Therefore ending inventory at cost is $56,875 ($105,000*.5417).
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