E6.

21 -Determine ending inventory at cost using retail method

Kicks Shoe Store uses the retail inventory method for its two departments, Women's Shoes and Men's Sho
The following information for each department is obtained.

Women's Men's
Item Shoes Shoes
Beginning inventory at cost $25,000 $45,000
Cost of goods purchased at cost 110,000 136,300
Net sales 178,000 185,000
Beginning inventory at retail 46,000 60,000
Cost of goods purchased at retail 179,000 185,000

Instructions
Compute the estimated cost of the ending inventory for each department under the retail inventory method
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a

Women's Shoes Men's Shoes

Cost Retail Cost Retail
Beginning inventory $25.000 $46,000 $45.000 $60,000
Goods purchased 110,000 179,000 136,300 179,000
Goods available for sale $135.000 225,000 $181.300 225,000
Net sales 178,000 178,000
Ending inventory at retail $47.000 $47.000

Cost-to-retail ratio:
Goods available for sale at cost $135,000 $181,300
Goods available for sale at retail $225.000 $245.000
Cost-to-retail ratio 0.6% 74%

Estimated cost of ending inventory:

Cost-to-retail ratio 0.6% 74%
Ending inventory at retail $47.000 $60.000
Estimated cost of ending inventory $28,000 $44.400

After you have completed the requirements of E6.21, consider these additional questions.
Answers are on the other tab in this file.
1. Assume Women's Shoes ending inventory at retail changed to $56,000 . What is the estimated cost
2. Assume Men's Shoes cost of goods purchased at retail changed to $195,000. What is the estimated
 Women's Shoes Men's Shoes
Cost Retail Cost Retail
Beginning inventory $25.000 $46,000 $45.000 $60,000
Goods purchased 110,000 179,000 136,300 195,000
Goods available for sale $135.000 225,000 $181.300 225,000
Net sales 169,000 185,000
Ending inventory at retail $56,000 $70,000

Cost-to-retail ratio:
Goods available for sale at cost $135,000 $181,300
Goods available for sale at retail $225.000 $255,000
Cost-to-retail ratio 0:06 1%

Estimated cost of ending inventory:

Cost-to-retail ratio 0.6% 1%
Ending inventory at retail $56,000 $70,000
Estimated cost of ending inventory $33,600 $49,769
 's Shoes and Men's Shoes.

retail inventory method.

a formula in cells with a "?" .

at is the estimated cost of ending inventory?

. What is the estimated cost of ending inventory?
P6.2A Determine cost of goods sold and ending inventory using FIFO, LIFO, and average-cost with analys
Glee Distribution markets CDs of the performing artist Unique. At the beginning of October, Glee had in be
inventory 2,000 of Unique's CDs with a unit cost of $7. During October, Glee made the following purchase
Oct. 3 2,500 @ $8 Oct. 19 3,000 @ $10
Oct. 9 3,500 @$9 Oct. 25 4,000 @ $11

During October, 10,900 units were sold. Glee uses a periodic inventory system.

Instructions
(a) Determine the cost of goods available for sale.
(b) Determine (1) the ending inventory and (2) the cost of goods sold under each of the
assumed cost flow methods (FIFO, LIFO and average cost). Prove the accuracy of the
cost of goods sold under the FIFO and LIFO methods.
(c ) Which cost flow method results in (1) the highest inventory amount for the balance sheet and
(2) the highest cost of goods sold for the income statement?
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a

(a) Determine the cost of goods available for sale.

COST OF GOODS AVAILABLE FOR SALE

Date Explanation Units Unit Cost Total Cost
Oct. 1 Beginning inventory 2,000 $7 $14.000
3 Purchase 2,500 8 20,000
9 Purchase 3,500 9 31,500
19 Purchase 3,000 10 30,000
25 Purchase 4,000 11 44,000
Total 15,000 $139.500

(b) Determine (1) the ending inventory and (2) the cost of goods sold under each of the
assumed cost flow methods (FIFO, LIFO and average cost). Prove the accuracy of the
cost of goods sold under the FIFO and LIFO methods.

(1) Ending Inventory - FIFO

Date Units Unit Cost Total Cost
Oct-20 100 $10 $1,000
25-Oct 4,000 11 44,000
4,100 $45.000

(2) Cost of Goods Sold - FIFO

Cost of goods available for sale $139.500
Less: Ending inventory 45,000
Cost of goods sold $94,500

Proof of Cost of Goods Sold - FIFO

Date Units Unit Cost Total Cost
Oct 1 2,000 $7 $14.000
Oct-03 2,500 8 20,000
Oct-09 3,500 9 31,500
Oct-19 2,900 10 29,000
10,900 $94.500

(1) Ending Inventory - LIFO

Date Units Unit Cost Total Cost
1-Oct 2,000 $7 $14,000
3-Oct 2,100 8 16,800
4,100 $30,800

(2) - Cost of Goods Sold -LIFO

Cost of goods available for sale $139.500
Less: Ending inventory 30,800
Cost of goods sold $108.700

Proof of Cost of Goods Sold - LIFO

Date Units Unit Cost Total Cost
1-Oct 2,000 $7 $3,200
3-Oct 2,500 8 31,500
Oct-20 3,500 9 30,000
Oct-20 2,900 10 44,000
10,900 $108,700

AVERAGE COST
Total goods available for sale $139.000
Total units available 15,000
Average cost* $9.30
*Round to two decimal points
 (1) Ending Inventory - Average Cost
Units Unit Cost Total Cost
4,100 $9.30 $38.130

(2) Cost of Goods Sold - Average Cost

Cost of goods available for sale $139.500
Less: Ending inventory 38,130
Cost of goods sold $101.370

After you have completed the requirements of P6.2A, consider these additional questions.
Answers are on the other tab in this file.
1. Assume that the number of units sold increased to 12,000. What is the impact on ending inventory a
FIFO method is used?
2. Assume that the number of units sold increased to 12,000. What is the impact on ending inventory a
LIFO method is used?
3. Assume that the number of units sold increased to 12,000. What is the impact on ending inventory a
average cost method is used?

Question 1
(1) Ending Inventory -FIFO
Date Units Unit Cost Total Cost
25-Oct 3,000 $11 $33,000

(2) - Cost of Goods Sold -FIFO

Cost of goods available for sale $139.500
Less: Ending inventory 33..000
Cost of goods sold $106,500

Proof of Cost of Goods Sold - FIFO

Date Units Unit Cost Total Cost
1-Oct 2,000 $7 $3,200
3-Oct 2,500 8 31,500
Oct-20 3,500 9 30,000
Oct-20 3,000 10 44,000
25-Oct 1,000 11 11,000
106,500
Question 2

(1) Ending Inventory - LIFO

Date Units Unit Cost Total Cost
1-Oct 2,000 $7 $14,000
3-Oct 1,000 8 8,000
3,000 $22,000

(2) - Cost of Goods Sold -LIFO

Cost of goods available for sale $139.500
Less: Ending inventory 22,000
Cost of goods sold $117,500

Proof of Cost of Goods Sold - LIFO

Date Units Unit Cost Total Cost
3-Oct 1,500 $8 $12,200
9-Oct 3,500 9 31,500
Oct-20 3,000 10 30,000
Oct-20 4,000 11 44,000
12,000 $117,500

Question 3

AVERAGE COST
Total goods available for sale $139.000
Total units available 15,000
Average cost* $9.30
*Round to two decimal points

(1) Ending Inventory - Average Cost

Units Unit Cost Total Cost
3,000 $9.30 $27,900

(2) Cost of Goods Sold - Average Cost

Cost of goods available for sale $139.500
Less: Ending inventory 27,900
Cost of goods sold $111,600
nd average-cost with analysis
g of October, Glee had in beginning
made the following purchases of Unique's CDs.

each of the
accuracy of the

e balance sheet and

or a formula in cells with a "?" .

each of the
accuracy of the
 questions.

mpact on ending inventory and cost of goods sold if the

mpact on ending inventory and cost of goods sold if the

mpact on ending inventory and cost of goods sold if the

P6.10A Compute gross profit rate and inventory loss using gross profit method
Bao Company lost all of its inventory in a fire on December 26, 2020. The accounting records showed the
following gross profit data for November and December.
December
November (to 12/26)
Net sales $600,000 $700,000
Beginning inventory 32,000 36,000
Purchases 389,000 420,000
Purchase returns and allowances 13,300 14,900
Purchase discounts 8,500 9,500
Freight-in 8,800 9,900
Ending inventory 36,000 ?

Bao is fully insured for fire losses but must prepare a report for the insurance company.

Instructions
(a) Compute the gross profit rate for November.
(b) Using the gross profit rate for November; determine the estimated cost of the inventory
lost in the fire.
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a

(a) November
Net Sales $600.000
Cost of goods sold
Beginning inventory $32.000
Purchases $389,000
Less: Purchase returns and allowances -13,300
Purchase discounts -8,500
Add: Freight-in 8,800
Cost of goods purchased 376,000
Cost of goods available for sale 408,000
Ending inventory 36,000
Cost of goods sold 372,000
Gross profit $228,000

Gross profit rate

Gross profit $228,000
Net Sales $600,000
Gross profit rate* 38.0%
*Round to 1 decimal point
(b) Net Sales $700,000
Less: Estimated gross profit 266,000
Estimated cost of goods sold $434,000

Beginning inventory $36,000

Purchases $420,000
Less: Purchase returns and allowances $14,900
Purchase discounts 9,500
Net purchases
Freight-in 9,900
Cost of goods purchased 405,500
Cost of goods available for sale 441,500
Less: Estimated cost of goods sold 434,000
Estimated inventory lost in fire $7,500

After you have completed the requirements of P6.10A, consider this additional question.
Answers are on the other tab in this file.
1. Assume that ending inventory in November changed to $45,000. What is the impact on the gross p
rate and the estimated inventory lost in fire in December?

(a) November
Net Sales $600.000
Cost of goods sold
Beginning inventory $32.000
Purchases $389,000
Less: Purchase returns and allowances 13,300
Purchase discounts 8,500
Add: Freight-in 8,800
Cost of goods purchased 376,000
Cost of goods available for sale 408,000
Ending inventory 45,000
Cost of goods sold 363,000
Gross profit $237,000

Gross profit rate

 Gross profit $237,000
Net Sales $600,000
Gross profit rate* 39.5%
*Round to 1 decimal point

(b) Net Sales $700,000

Less: Estimated gross profit 276,500
Estimated cost of goods sold $423,500

Beginning inventory $36,000

Purchases $420,000
Less: Purchase returns and allowances $14,900
Purchase discounts 9,500
Net purchases 396,600
Freight-in 9,900
Cost of goods purchased 405,500
Cost of goods available for sale 441,500
Less: Estimated cost of goods sold 423,500
Estimated inventory lost in fire $18,000
nting records showed the

e inventory

a formula in cells with a "?" .

he impact on the gross profit