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May 24th, 2013, 05:02 PM   #1
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Cost Retail At Method

Spring Dress shop's inventory at cost on January 1 was $39,000. Its retail is $59,000. During the year, Spring purchased additional merchandise at cost of $195,000 with a retail value of $395,000. The net sales at retail for the year were $348,000. Could you calculate Spring's inventory at cost by the retail method? Round the cost ratio to the nearest whole percent.
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May 24th, 2013, 08:15 PM   #2
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Re: Cost Retail At Method

Quote:
Originally Posted by Bikenhaalkin
Spring Dress shop's inventory at cost on January 1 was $39,000. Its retail is $59,000. During the year, Spring purchased additional merchandise at cost of $195,000 with a retail value of $395,000. The net sales at retail for the year were $348,000. Could you calculate Spring's inventory at cost by the retail method? Round the cost ratio to the nearest whole percent.
I'll guess that it works this way:

348000 - 59000 = 289000 applicable to the 195000 (original 39000 is eliminated)

289000/395000 * 195000 = 142.67 = inventory left after year's sale.
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May 25th, 2013, 06:23 AM   #3
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Re: Cost Retail At Method

I got Inventory at cost $55,120, I found the markup then I based on cost then found the markdown from retail.
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May 25th, 2013, 03:47 PM   #4
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The cost-to-retail ratio for the additional merchandise is very different from that for the inventory at the beginning of the year. Nevertheless, you are expected to simply add the figures given and estimate the cost-to-retail ratio as (39000 + 195000)/(59000 + 395000) = 52% (after rounding as instructed).

Hence the cost price corresponding to the net sales of $348,000 is estimated as 52% of $348,000 = $180,960,
and so the inventory at the end of the year is estimated as 39,000 + $195,000 - $180,960 = $53,040.
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May 25th, 2013, 05:44 PM   #5
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Re: Cost Retail At Method

I see it this way; FIFO:
Code:
             INVENTORY                    RETAIL
Jan.01                  39,000                       59,000
purchases:    195,000  234,000           395,000    454,000
sales:        -39,000  195,000           -59,000    395,000
sales:       -142,670   52,330          -289,000    106,000
195000 / 395000 * 289000 = 142670

EDIT: above not rounded...
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May 26th, 2013, 03:54 AM   #6
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Even if you did it that way, why ignore the instruction to round the cost ratio to the nearest whole percent?
195000/395000 = 49% after rounding, and 49% of $289,000 is $141,610.
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May 26th, 2013, 09:12 PM   #7
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Re:

Quote:
Originally Posted by skipjack
Even if you did it that way, why ignore the instruction to round the cost ratio to the nearest whole percent?
195000/395000 = 49% after rounding, and 49% of $289,000 is $141,610.
No reason. Was demonstrating another way.
I'm sure the OP can round off on his own

Anyhow, I just added explanation by edit...
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