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29 August, 15:58

Cloverdale, Inc., uses the conventional retail inventory method to account for inventory. The following information relates to current year's operations: Cost Retail Beginning inventory and purchases $ 318,500 $ 580,500 Net markups 32,000 Net markdowns 22,000 Net sales 542,000 What amount should be reported as cost of goods sold for the year? Multiple Choice $292,340. $291,890. $293,280. None of these answer choices are correct.

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  1. 29 August, 16:07
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    Answer: $293,280

    Explanation:

    Solving this requires that we find the closing inventory at retail value and subtract it from the inventory cost.

    Ending inventory at retail = Retail begining inventory + net markups - net markdowns - sales

    = 580,500 + 32,000 - 22,000 - 542,000

    = $48,500

    $48,500 is the ending inventory estimate at retail.

    The Cost to Retail percentage is needed to equate the figure above to cost.

    At Cost the beginning inventory and purchases was $318,500

    At Retail the beginning inventory and purchases was

    580,500 + 32,000 = $612,500

    Equating them would be,

    = 318,500/612,500

    = 52%

    52% is the ratio therefore 52% of Retail ending inventory is Cost ending inventory.

    = 52% * 48,500

    = $25,220

    Cost of goods sold is Opening inventory and purchases - closing Inventory,

    = 318,500 - 25,220

    = $293,280

    $293,280 should be reported as cost of goods sold for the year.
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