Question
Sparrow Company uses the retail inventory method to estimate ending inventory and cost of goods sold....
Sparrow Company uses the retail inventory method to estimate ending inventory and cost of goods sold. Data for 2018 are as follows: Cost Retail
COST RETAIL
Beginning inventory $ 89,000 $ 179,000
Purchases 352,000 579,000
Freight-in 8,900
Purchase returns 6,900 10,900
Net markups 15,900
Net markdowns 11,900
Normal spoilage 2,900
Abnormal spoilage 4,512 7,900
Sales 539,000
Sales returns 9,900
The company records sales net of employee discounts. Discounts for 2018 totaled $3,900. Required: 1. Estimate Sparrow’s ending inventory and cost of goods sold for the year using the retail inventory method and the average cost application. 2. Estimate Sparrow’s ending inventory and cost of goods sold for the year using the retail inventory method and the conventional application.
| Average Cost Application | Conventional Application | |
| Estimate Ending Inventory at retail | ||
| Estimate Ending Inventory at Cost | ||
| Estimated Cost of goods sold |
Answers
Answer:
1) Average Cost Method :-
Particulars Cost ($) Retail ($) Beginning Inventory 89000 179000 Add : Purchase 352000 579000 Less : Purchase Returns (6900) (10900) Add : Freight in 8900 Net Markup 15900 Less : Net Markdowns (11900) Abnormal Spoilage (4512) (7900) Goods Available for sale (A) 438488 743200 Less : Normal Spoilage (2900) Less : Sales Net Sales (539000-9900) (529100) Employee Disccounts (3900) Estimated Ending Inventory at Retail (B) 207300 Less : Estimated Ending Inventory at Cost (See Below) (B) (122307) Estimated Cost of goods sold (A-B) 316181 535900 Cost to Retail % :-
= (Goods Available for sale at cost / Goods Available for sale at retail)*100
= ($438488/ $743200)*100
= 59%
Amount of Estimated Ending Inventory at Cost :-
= Estimated Ending Inventory at Retail * Cost to Retail %
= $207300* 59%
= $122307
2) Conventional Method :-
Particulars Cost ($) Retail ($) Beginning Inventory 89000 179000 Add : Purchase 352000 579000 Less : Purchase Returns (6900) (10900) Add : Freight in 8900 Net Markup 15900 Abnormal Spoilage (4512) (7900) Goods Available for sale (Before Net Markdowns) 438488 755100 Less : Net Markdowns (11900) Goods Available for Sale (After Net Markdowns) Less : Normal Spoilage (2900) Less : Sales Net Sales (539000-9900) (529100) Employee Disccounts (3900) Estimated Ending Inventory at Retail 207300 Less : Estimated Ending Inventory at Cost (See Below) (B) (120379) Estimated Cost of goods sold (A-B) 318109 547800 Cost to Retail % :-
= (Goods Available for sale at cost / Goods Available for sale at retail)*100
= ($438488/ $755100)*100
= 58.07%
Amount of Estimated Ending Inventory at Cost :-
= Estimated Ending Inventory at Retail * Cost to Retail %
= $207300 20* 58.07%
= $120379
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