Problem 9-7 Retail method-average cost and LCM [LO9-3, 9-4] Smith-Kline Company

Question

Problem 9-7 Retail method-average cost and LCM [LO9-3, 9-4] Smith-Kline Company maintains inventory records at selling prices as well as at cost. For 2013, the records indicate thefollowing data ($ in 000s) CostRetail $ 77 $ 122 668 1,003 Beginning inventory Purchases Freight-in on 27 purchases 3 5 9 913 2 Purchase returns Net markups Net markdowns Net sales Required Use the retail method to approximate cost of ending inventory in each of the following ways (Round your final answers to 2 decimal places. Enter your answers irn thusands.) ($ in 000s) Ending inventory 1. Average cost 2. Average (LCM) cost

Explanation / Answer

Cost to Retail %

For Average Cost = 770 / 1,118 = 0.6887

For  Average (LCM) Cost = 770 / (1,118 +9) = 0.6832

Ending inventory at retail (sales) = Total Goods available for sales (Retails) - Net Sales (Retails)

=$1,118 - $913 = $205

Cost ($in "000") Retail ($in "000") Beginning Inventory 77 122 Add :Purchases 668 1,003 Add : Frignt - in on purchase 27 Less : Purchase return (2) (3) Add : Net markups 5 Less : Net markdowns (9) Total Goods available for sales 770 1,118

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