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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Use the information in RE8-7. Calculate Uncle Butch’s Hunting Supply Shop's ending inventory using the retail inventory method under the average cost assumption. Round the cost-to-retail ratio to 3 decimal places.

Uncle Butch’s Hunting Supply Shop reports the following information related to inventory:

Chapter 8, Problem 8RE, Use the information in RE8-7. Calculate Uncle Butchs Hunting Supply Shop's ending inventory using

Calculate Uncle Butch’s’ ending inventory using the retail inventory method under the FIFO cost flow assumption. Round the cost-to-retail ratio to 3 decimal places.

To determine

Compute the ending inventory using the retail inventory method under the average cost assumption.

Explanation

Retail inventory method: This method is like a gross profit method. It is depends on the relationship between cost and selling price of the product , for the purpose of estimate the value of ending inventory and cost of goods sold.

It takes into account all the retail amounts that is, the current selling prices. Under this method, the goods available for sale, at retail is deducted from the sales, at retail to determine the ending inventory, at retail.

Average cost method: Under this method, the cost of the goods available for sale is divided by the number of units available for sale during a particular period.

Compute the ending inventory using the retail inventory method under the average cost assumption.

Ending Inventory - Average Cost
DetailsCost ($)Retail ($)
Beginning inventory35,00092,000
Add:  Net purchase75,000200,000
          Net additional markups 15,000
Less:  Net markdowns 0(22,000)
Goods available for sale110,000285,000
Less: Sales (178,000)
Estimated ending inventory at retail $107,000
Estimated ending inventory at cost$41,302 

Table (1)

Working note 1:

Calculate ending inventory at cost...

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