Retail inventory method; conventional
Response to the following problem:
G rand Department Store, Inc., uses the retail inventory method to estimate ending inventory for its monthly financial statements. The following data pertain to a single department for the month of October 2016:
Inventory, October 1, 2016:
At cost $ 20,000
At retail 30,000
Purchases (exclusive of freight and returns):
At cost 100,151
At retail 146,495
Freight-in 5,100
Purchase returns:
At cost 2,100
At retail 2,800
Additional markups 2,500
Markup cancellations 265
Markdowns (net) 800
Normal spoilage and breakage 4,500
Sales 135,730
Required:
1. Using the conventional retail method, prepare a schedule computing estimated lower of cost and net realizable value inventory for October 31, 2016.
2. A department store using the conventional retail inventory method estimates the cost of its ending inventory as $29,000. An accurate physical count reveals only $22,000 of inventory at lower of cost and net realizable value. List the factors that may have caused the difference between computed inventory and the physical count.