Flint Company began operations late in 2016 and adopted the conventional retail

Question

Flint Company began operations late in 2016 and adopted the conventional retail inventory method. Because there was no beginning inventory for 2016 and no markdowns during 2016, the ending inventory for 2016 was $11,811 under both the conventional retail method and the LIFO retail method. At the end of 2017, management wants to compare the results of applying the conventional and LIFO retail methods. There was no change in the price level during 2017. The following data are available for computations.

-----------------------------------------------------Cost-------------------------- Retail

Inventory, January 1, 2017 --------------$11,811------------------------ $18,900

Sales revenue -------------------------------------------------------------------80,000

Net markups----------------------------------------------------------------------- 9,200

Net markdowns -------------------------------------------------------------------1,500

Purchases -----------------------------------53,400 -----------------------------74,600

Freight-in -------------------------------------6,679

Estimated theft ----------------------------------------------------------------------1,900

Compute the cost of the 2017 ending inventory under both:

(a) The conventional retail method. (Round ratios for computational purposes to 0 decimal places, e.g. 78% and final answer to 0 decimal places, e.g. 28,987.) Ending inventory using the conventional retail method = $___________

(b) The LIFO retail method. (Round ratios for computational purposes to 0 decimal places, e.g. 78% and final answers to 0 decimal places, e.g. 28,987.) Ending inventory at cost $ Ending inventory at retail = $____________

Explanation / Answer

Part 1 - Calculation of inventory under Conventional retail method

COST TO RETAIL PERCENTAGE =

(Cost of goods available /Original retail price of goods available, plus net markups)*100

= ($71890/$102700)*100 = 70%

$13510

($19300*70/100)

Part 2 Inventory cost valuation as per LIFO Method

COST TO RETAIL PERCENTAGE =

[Cost of goods available(excluding beginning inventory) /Original retail price of goods available, plus net markups, less net markdown]*100

= ($60079/$82300)*100 = 73%

Computation of ending Inventory at LIFO

62.49%

($11811/$18900)*100

(Prior year cost to retail)

Particulars Cost Retail Inventory as on 1 january 2017 $11811 $18900 Purchases $53400 $74600 Freight In $6679 Add : Net markups $9200 Totals $71890 $102700 (Cost of goods available) (Original retail price of goods available + net markups)

COST TO RETAIL PERCENTAGE =

(Cost of goods available /Original retail price of goods available, plus net markups)*100

= ($71890/$102700)*100 = 70%

Less : net mark downs $1500 Cost of goods available for sale $101200 sales $80000 Estimated theft $1900 Estimated ending Inventory at retail $19300 Estimated ending inventory at cost

$13510

($19300*70/100)

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