Hoover Co. uses the retail inventory method. The following information is available for the current year.                                                                                      Cost                       Retail              Beginning inventory                                           $  78,000               $122,000            Purchases                                                            295,000                 415,000            Freight-in                                                                  5,000                       —            Employee discounts                                                   —                        2,000            Net markups                                                              —                      15,000            Net markdowns                                                          —                      20,000            Sales                                                                         —                   390,000 a)   If the ending inventory is to be valued at approximately lower-of-average-cost-or-net realizable value, the calculation of the cost ratio should be based on cost of $ Answer  and retail of $ Answer  respectively. b)   The ending inventory at retail should be $ Answer  c)    The approximate cost of the ending inventory by the conventional retail method is $ Answer

Question
Asked Nov 24, 2019
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Hoover Co. uses the retail inventory method. The following information is available for the current year.

                                                                                      Cost                       Retail  

            Beginning inventory                                           $  78,000               $122,000

            Purchases                                                            295,000                 415,000

            Freight-in                                                                  5,000                       —

            Employee discounts                                                   —                        2,000

            Net markups                                                              —                      15,000

            Net markdowns                                                          —                      20,000

            Sales                                                                         —                   390,000

 

a)   If the ending inventory is to be valued at approximately lower-of-average-cost-or-net realizable value, the calculation of the cost ratio should be based on cost of $ Answer

 
 and retail of $ Answer
 
 respectively.

 

b)   The ending inventory at retail should be $ Answer

 

 

c)    The approximate cost of the ending inventory by the conventional retail method is $ Answer

 

 

 

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Expert Answer

Step 1

a. Compute the total cost of ending inventory under lower of average cost or market method:

Cost (S)
Retail (S)
Particulars
Beginning inventory
$78,000
$122,000
$415.000
Purchases
$ 295,000
$5,000
Freight
Totals
$378,000
537,000
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Cost (S) Retail (S) Particulars Beginning inventory $78,000 $122,000 $415.000 Purchases $ 295,000 $5,000 Freight Totals $378,000 537,000

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Step 2

b. Compute the ending inventory at retail:

Cost (S)
Retail (S)
Particulars
Beginning inventory
78,000
$122,000
$415.000
$ 295,000
$ 5,000
Purchases
Freight
Totals
$378,000
$537,000
$15.000
Add: net mark-ups
Total
$378,000
$ 552,000
Less: employee discounts
-$ 8,000
$ 20.000
Less: Net markdowns
Sales price of goods available
Less: Net sales
$524,000
-$390,000
$ 134,000
Ending inventory
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Cost (S) Retail (S) Particulars Beginning inventory 78,000 $122,000 $415.000 $ 295,000 $ 5,000 Purchases Freight Totals $378,000 $537,000 $15.000 Add: net mark-ups Total $378,000 $ 552,000 Less: employee discounts -$ 8,000 $ 20.000 Less: Net markdowns Sales price of goods available Less: Net sales $524,000 -$390,000 $ 134,000 Ending inventory

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Step 3

c. Compute the approximate cost of the ending inventory ...

Particulars
Beginning inventory
Cost (S)
Retail (S)
78,000
122,000
$415.000
Purchases
$295,000
Freight
$5,000
$378,000
Totals
$537,000
$15.000
Add: net mark-ups
$ 378,000
Total
552,000
Less: employee discounts
-$ 8,000
-$ 20,000
Less: Net markdowns
Sales price of goods available
$524,000
Less: Net sales
-$ 390,000
Ending inventory
$134,000
Cost-to-retail
0.6848
Ending inventory cost
$91,760.87
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Particulars Beginning inventory Cost (S) Retail (S) 78,000 122,000 $415.000 Purchases $295,000 Freight $5,000 $378,000 Totals $537,000 $15.000 Add: net mark-ups $ 378,000 Total 552,000 Less: employee discounts -$ 8,000 -$ 20,000 Less: Net markdowns Sales price of goods available $524,000 Less: Net sales -$ 390,000 Ending inventory $134,000 Cost-to-retail 0.6848 Ending inventory cost $91,760.87

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