Difference Between Cost and Conventional (aka LCM) Retail is theinclusion or exclusions of Mark-ups and Mark-downs in the Cost toRetail RatioRetail Inventory MethodRetail Inventory MethodITEM:ITEM:Cost to Retail Ratio:Cost to Retail Ratio:Cost MethodCost MethodIncludeMark-upsIncludeMark-upsIncludeMark-downsIncludeMark-downsConventional MethodConventional MethodIncludeMark-upsIncludeMark-upsExcludeMark-downsExcludeMark-downsExclusion of Mark-downs approximates LCM – Why?Exclusion of Mark-downs approximates LCM – Why?
Items to Consider When Calculating: 1) Cost to Retail Ratio,2) Goods Available for Sale at Cost and Retail, and 3) EndingInventory at RetailRetail Inventory MethodRetail Inventory MethodFreight costsFreight costsPurchasereturns and allowancesPurchasereturns and allowancesPurchasediscountsPurchasediscountsInventory Transfers-inInventory Transfers-inNormal spoilageNormal spoilageAbnormal spoilageAbnormal spoilageEmployeediscountsEmployeediscountsITEM:ITEM:INCLUDE IN:INCLUDE IN:1, 2 (cost only)1, 2 (cost only)1, 2, and 31, 2, and 31, 2 (cost only)1, 2 (cost only)1, 2 and 31, 2 and 31, 2, 31, 2, 333
Retail Inventory - Cost MethodRetail Inventory - Cost MethodP9-8 Solution - Cost MethodCost toCOSTRETAILRetail %Beg. inventory52,000$78,000$Purchases272,000423,000Freight in16,600Purchase returns(5,600)(8,000)Markdowns, net(3,600)Markups, net7,000Current year additions283,000418,400Goods available for sale335,000496,40067.49%Normal spoilage(10,000)Sales(390,000)Ending inventory at retail96,400$Ending inventory at Cost:96,400$x67.49%=65,056$=/
Retail Inventory - LCM MethodRetail Inventory - LCM MethodP9-8 Solution - LCM (CONVENTIONAL) Method:Cost toCOSTRETAILRetail %Beg. inventory52,000$78,000$Purchases272,000423,000Freight in16,600Purchase returns(5,600)(8,000)Markups, net7,000Current year additions283,000422,000Goods available for sale335,000500,00067.00%Markdowns, net(3,600)Normal spoilage(10,000)Sales(390,000)Ending inventory at retail96,400$Ending inventory at Cost:96,400$x67.00%=64,588$=/
Primary reason to use LIFOTax advantages.Results in a better matching of costs and revenues.Theuseof LIFO retail is madeunder two assumptions:1.stableprices and2.fluctuating prices.
Stable Prices—LIFO Retail MethodA major assumption of theLIFO retail method is that themarkups andmarkdowns apply only to thegoods purchased during thecurrent period and notto thebeginning inventory.Beginning inventory is excluded fromthecost-to-retail percentage.
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Tags
Accounting, Revenue, Generally Accepted Accounting Principles, retail inventory, DV LI FO