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Phillips Supply uses a periodic inventory system but needs to determine the approximate amount of inventory at the end of each month without taking a physical inventory. Phillips has provided the following inventory data:  Cost Price Retail Selling PriceInventory of merchandise, June 30 $ 304,000 $ 509,000Purchases during July 222,000 393,000Goods available for sale during July $ 526,000 $ 902,000Net sales during July   $ 370,000Required:a. Estimate the cost of goods sold and the cost of the July 31 ending inventory using the retail method of evaluation.

Question

Phillips Supply uses a periodic inventory system but needs to determine the approximate amount of inventory at the end of each month without taking a physical inventory. Phillips has provided the following inventory data:  Cost Price Retail Selling PriceInventory of merchandise, June 30 304,000 304,000 509,000Purchases during July 222,000 393,000Goods available for sale during July 526,000 526,000 902,000Net sales during July   $ 370,000Required:a. Estimate the cost of goods sold and the cost of the July 31 ending inventory using the retail method of evaluation.

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Solution

To estimate the cost of goods sold and the cost of the July 31 ending inventory using the retail method of evaluation, follow these steps:

  1. Calculate the cost-to-retail ratio: This is done by dividing the cost of goods available for sale by the retail price of goods available for sale.

    Cost-to-retail ratio = Cost of goods available for sale / Retail price of goods available for sale Cost-to-retail ratio = 526,000/526,000 / 902,000 = 0.58315

  2. Calculate the cost of goods sold: This is done by multiplying the cost-to-retail ratio by the net sales.

    Cost of goods sold = Cost-to-retail ratio * Net sales Cost of goods sold = 0.58315 * 370,000=370,000 = 215,765.50

  3. Calculate the ending inventory: This is done by subtracting the cost of goods sold from the cost of goods available for sale.

    Ending inventory = Cost of goods available for sale - Cost of goods sold Ending inventory = 526,000−526,000 - 215,765.50 = $310,234.50

So, the estimated cost of goods sold for July is 215,765.50andtheestimatedcostoftheJuly31endinginventoryis215,765.50 and the estimated cost of the July 31 ending inventory is 310,234.50.

This problem has been solved

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