Manila Bread Company uses the average cost retail method to estimate its ending inventories. The following data has been summarized for the year 2024:
Cost Retail
Inventory, January 1 $ 54,205 $ 78,000
Purchases 326,000 466,000
Net markups 8,200
Net markdowns 16,700
Net sales 412,000
Required:
Estimate the ending inventory as of December 31, 2024.
To estimate the ending inventory using the average cost retail method, we need to calculate the cost-to-retail ratio. This ratio is calculated by dividing the cost of goods available for sale by the retail value of goods available for sale.
Cost of goods available for sale = Inventory, January 1 + Purchases - Net markups - Net markdowns
= $54,205 + $326,000 - $8,200 - $16,700
= $355,305
Retail value of goods available for sale = Retail value, January 1 + Net markups - Net markdowns - Net sales
= $78,000 + $8,200 - $16,700 - $412,000
= $57,500
Cost-to-retail ratio = Cost of goods available for sale / Retail value of goods available for sale
= $355,305 / $57,500
≈ 6.17
To estimate the ending inventory, we multiply the retail value of the ending inventory by the cost-to-retail ratio:
Ending inventory = Ending retail value x Cost-to-retail ratio
Since we don't have the ending retail value, we need to calculate it.
Ending retail value = Retail value, January 1 + Net markups - Net markdowns - Net sales
= $78,000 + $8,200 - $16,700 - $412,000
= $57,500
Now we can estimate the ending inventory:
Ending inventory = $57,500 x 6.17
= $354,295
Therefore, the estimated ending inventory as of December 31, 2024, is $354,295.