LeMay Department Store uses the retail inventory method to estimate ending inven

Question

LeMay Department Store uses the retail inventory method to estimate ending inventory for its monthly financial statements. The following data pertain to one of its largest departments for the month of March 2018:

Sales are recorded net of employee discounts.

1. Compute estimated ending inventory and cost of goods sold for March applying the conventional retail method.

2. Recompute the cost-to-retail percentage using the average cost method.

Recompute the cost-to-retail percentage using the average cost method. (Round your percentage answer to 2 decimal places (i.e., 0.1234 should be entered as 12.34%).)

Cost Retail Beginning inventory $ 50,000 $ 70,000 Purchases 217,000 410,000 Freight-in 10,986 Purchase returns 4,500 7,000 Net markups 6,800 Net markdowns 4,500 Normal breakage 7,000 Net sales 290,000 Employee discounts 2,800

Explanation / Answer

*$175,500 x 57.00% = $100,035

Cost Retail Cost-to-Retail Ratio Beginning Inventory $50,000 $70,000 Plus: Net Purchases $217,000 $410,000 Freight-in $10,986 Less: Purchase returns $4,500 $7,000 Plus: Net markups $6,800 Less: Net markdowns $4,500 Goods available for sale $273,486 $475,300 Cost-to-retail percentage (conventional retail method) 57.00% Less: Normal breakage $7,000 Sales: Net Sales $290,000 Employee discounts $2,800 Estimated ending inventory at retail $175,500 Estimated ending inventory at cost $100,035* Estimated cost of goods sold $173,451

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