Billingsly Products uses the conventional retail method to estimate its ending inventories. The following data has been summarized for the year 2024:
Cost Retail
Inventory, January 1 $ 61,000 $ 82,000
Purchases 324,280 469,200
Net markups 8,800
Net markdowns 17,500
Net sales 400,000
Required:
Estimate the ending inventory as of December 31, 2024.
To estimate the ending inventory using the conventional retail method, we need to calculate the cost-to-retail ratio (C/R ratio) and then apply it to the retail value of the ending inventory.
First, calculate the cost of goods available for sale:
Cost of goods available for sale = Inventory, January 1 + Purchases
= $61,000 + $324,280
= $385,280
Next, calculate the retail value of goods available for sale:
Retail value of goods available for sale = Inventory, January 1 + Purchases + Net Markups - Net Markdowns
= $82,000 + $469,200 + $8,800 - $17,500
= $542,500
Now, calculate the cost-to-retail ratio:
C/R ratio = Cost of goods available for sale / Retail value of goods available for sale
= $385,280 / $542,500
≈ 0.71 (rounded to two decimal places)
Finally, estimate the ending inventory:
Ending inventory = Retail value of the ending inventory × C/R ratio
= $400,000 × 0.71
= $284,000
Therefore, the estimated ending inventory as of December 31, 2024, is $284,000.