Debbie's Bling Shop uses the lower of average cost or market retail inventory method to determine its ending inventory. The accounting records for the current year for Debbie's contained the following information: $\begin{array}{lll}
\underline{\text { Retail }}&\underline{\text {Cost}} \
\$ 27,500 & \$ 19,000 & \text { Beginning inventory } \
94,000 & 71,500 & \text { Purchases } \
105,000 & & \text { Sales } \
5,167 & & \text { Net markups } \
3,067 & & \text { Net markdowns }
\end{array}$
In addition, the accounting records for Debbie's disclosed that freight-in charges were $6,700 and sales returns were $2,833. What is the cost-to-retail percentage to be used for ending inventory calculations?

Question

Debbie's Bling Shop uses the lower of average cost or market retail inventory method to determine its ending inventory. The accounting records for the current year for Debbie's contained the following information: $\begin{array}{lll}
\underline{\text { Retail }}&\underline{\text {Cost}} \ 
\$ 27,500 & \$ 19,000 & \text { Beginning inventory } \
94,000 & 71,500 & \text { Purchases } \
105,000 & & \text { Sales } \
5,167 & & \text { Net markups } \
3,067 & & \text { Net markdowns }
\end{array}$
 In addition, the accounting records for Debbie's disclosed that freight-in charges were $6,700 and sales returns were $2,833. What is the cost-to-retail percentage to be used for ending inventory calculations?

Quizplus · Accepted Answer

The cost-to-retail percentage is calculated as (Cost of Goods Available for Sale) / (Retail Value of Goods Available for Sale). The cost is $19,000 (beginning inventory) + $71,500 (purchases) + $6,700 (freight-in) = $97,200. The retail is $27,500 (beginning inventory) + $94,000 (purchases) + $5,167 (net markups) - $3,067 (net markdowns) = $123,600. The percentage is $97,200 / $123,600 = 78.7%. However, considering sales returns, the adjusted retail is $123,600 + $2,833 = $126,433, making the percentage $97,200 / $126,433 = 76.7%.

Debbie's Bling Shop Uses the Lower of Average Cost or Market