Explanation Conventional Retail Inventory Method: Conventional retail inventory method is the inventory valuation method which approximates the cost of ending inventory balance by taking into consideration the requirement that firms report their inventory at lower of cost or market based on the relationship between cost and selling price. Following is the table showing computation of ending inventory under the conventional retail method: Particulars Cost value (in$) Retail value (in$) Beginning inventory 8,500 38,000 Add: net purchases 153,200 132,000 Add: Net markups 0 10,000 Sub-total 161,700 180,000 Less: Net markdowns 0 (12,100) Cost of goods available for sale 161,700 167,900 Less: sales 0 146,000 Ending inventory at retail value 161,700 21,900 Cost of retail ratio 0 0,8983 Ending inventory at cost value 19,672.7 Table (1) Hence, the computed value of ending inventory is $19,673. For calculating cost of goods sold as per the conventional retail method, we need to subtract cost of goods available at cost value from the ending inventory. Following computation is provided below: Cost of goods sold = Cost of goods available for sale − Ending inventory = $161,700 − $ 19 , 673 = $ 142 , 027 Therefore, cost of goods sold is $142,027

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ISBN: 9780134730370

Author: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella

Publisher: PEARSON

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Inventory Valuation

Before discussing the topic inventory valuation let’s discuss the meaning of inventory. In accounting, inventory is also known as stock. Inventory means all the finished goods, materials, merchandise that a business holds for the purpose of selling it in…

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Chapter 10, Problem 10.15P

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The Company’s ending inventory and cost of goods sold under the conventional retail method.

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The Company’s ending inventory and cost of goods sold under the conventional retail method.

Solution Summary: The author explains that the Company's ending inventory and cost of goods sold under the conventional retail method is 19,673 and 142,027.

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