Problem 9‐4

Retail inventory method is used to estimate ending inventory and cost of 
goods sold
Cost Retail
Beginning inventory $  90,000 $180,000
Purchases 355,000 580,000
Freight‐in 9,000
Purchase returns 7,000 11,000
Net markups 16,000
Net markdowns 12,000
Normal spoilage 3,000
Abnormal spoilage 4,800 8,000
Sales 540,000
Sales returns 10,000
Sales are recorded net of employee discounts of $4,000
©Dr. Chula King
All Rights Reserved

Problem 9‐4 (continued)
Part 1:  Estimate the ending inventory and cost of goods sold using the retail inventory 
method and average cost
Cost Retail
Beginning inventory $  90,000 $180,000
Add:   Purchases 355,000 580,000
Freight‐in 9,000
Deduct: Purchase returns (7,000) (11,000)
Add: Net markups 16,000
Deduct: Net markdowns (12,000)
Abnormal spoilage
p g ((4,800)
, ) ((8,000)
, )
Goods available for sale $422,200 $745,000
Cost/Retail % = $422,200 ÷ $745,000 = 59.36%
Deduct: Normal spoilage (3,000)
Net sales (540,000 – 10,000) (530,000)
Employee discounts (4,000)
Ending Inventory at retail $208,000
Ending inventory at cost (59.36% x $208,000) (123,469)
Cost of goods sold $318,731

©Dr. Chula King
All Rights Reserved

Problem 9‐4 (continued)
Part 2:  Estimate the ending inventory and cost of goods sold using the retail inventory 
method and conventional (average, LCM)
Cost Retail
Beginning inventory $  90,000 $180,000
Add:   Purchases 355,000 580,000
Freight‐in 9,000
Deduct: Purchase returns (7,000) (11,000)
Add: Net markups 16,000
Deduct: Abnormal spoilage (4,800) (8,000)
$442,200
$ , $757,000
$ ,
Cost/Retail % = $422,200 ÷ $757,000 = 58.41%
Deduct: Net markdowns (12,000)
Goods Available for sale $442,200 $745,000                
Deduct: Normal spoilage (3,000)
Net sales (540,000 – 10,000) (530,000)
Employee discounts (4,000)
Ending Inventory at retail $208,000
Ending inventory at cost (58.41% x $208,000) (121,493)
Cost of goods sold $320,707

©Dr. Chula King
All Rights Reserved