Sparrow Company uses the retail inventory method to estimate ending inventory an

Question

Sparrow Company uses the retail inventory method to estimate ending inventory and cost of goods sold. Data for 2018 are as follows Cost Retail Beginning inventory Purchases Freight-in Purchase returns Net markups Net markdowns Normal spoilage Abnormal spoilage Sales Sales returns $81,000 $171,000 375,000 571,000 8,100 6,100 10,100 15,100 11,100 2,100 7,100 531,000 9,100 4,322 The company records sales net of employee discounts. Discounts for 2018 totaled $3,100 Required: 1. Estimate Sparrow's ending inventory and cost of goods sold for the year using the retail inventory method and the average cost application 2. Estimate Sparrow's ending inventory and cost of goods sold for the year using the retail inventory method and the conventional application (For all requirements, round Cost-to-retail percentage to two decimal places and final answers to whole dollars.) Average cost Conventional application application

Explanation / Answer

Part 1 retail inventory method and average cost

Part 2

Retail inventory method and conventional method

Cost retail Beginning inventory 81000 171000 Add: Purchase 375000 571000 Freight in 8100 Deduct: purchase returns (6100) (10100) Add: mark ups 15100 Deduct: mark downs (11100) Abornmal spoilage (4322) (7100) Goods available for sale 453678 728800 Cost to retail %=(453678/728800)=62.25% Deduct : normal spoilage (2100) Net sales =(531000-9100)=529100 (529100) Employee discounts (3100) Ending inventory at retail 194500 Ending inventory at cost (194500*62.25%) (121076) Cost of goods sold 332602

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