Question

Use the information for Boyne Inc. from BE9-10, and assume the price level increased from 100 at the beginning of the year to 115 at year-end. Compute ending inventory at cost using the dollar-value LIFO retail method

Short answer

The ending inventory at cost equals $27,952.80.

Step-by-step solution

Calculation of ending inventory at retail

Inventory value at retail is calculated as follows:

	Cost	Retail
Beginning inventory	$12,000	$20,000
Add: Net Purchases	120,000	170,000
Add: Net Markups		10,000
Less: Net Markdowns	______	7,000
Total (Excluding beginning inventory)	$120,000	$173,000
Total (Including beginning inventory)	$132,000	$193,000
Less: Sales		147,000
Ending inventory at retail		$46,000

Calculation of cost-to-retail ratio of beginning inventory

The cost-to-retail ratio of beginning inventory is calculated as follows:

$\begin{array}{rcl}\mathrm{Cost}\mathrm{to}\mathrm{retail}\mathrm{ratio}\mathrm{at}\mathrm{beginning}\mathrm{inventory}& =& \frac{\mathrm{Beginning}\mathrm{Inventory}\mathrm{at}\mathrm{cost}}{\mathrm{Beginning}\mathrm{Inventory}\mathrm{at}\mathrm{retail}}\times 100\\ & =& \frac{\$12,000}{\$20,000}\times 100\\ & =& 60\%\end{array}$

Calculation of cost-to-retail ratio of total excluding beginning inventory

The cost-to-retail ratio of total excluding beginning inventory is calculated as follows:

$\begin{array}{rcl}\mathrm{Cost}\mathrm{to}\mathrm{retail}\mathrm{ratio}\mathrm{of}\mathrm{excluding}\mathrm{beginning}\mathrm{inventory}& =& \frac{\mathrm{Excluding}\mathrm{Beginning}\mathrm{Inventory}\mathrm{at}\mathrm{Cost}}{\mathrm{Excluding}\mathrm{Beginning}\mathrm{Inventory}\mathrm{at}\mathrm{Retail}}\times 100\\ & =& \frac{\$120,000}{\$173,000}\times 100\\ & =& 69.36\%\end{array}$

Calculation of ending inventory at retail deflated

$\begin{array}{rcl}\mathrm{Ending}\mathrm{Inventory}\mathrm{at}\mathrm{Retail}\mathrm{Deflated}& =& \frac{\mathrm{Ending}\mathrm{Inventory}\mathrm{at}\mathrm{Cost}}{\mathrm{Price}\mathrm{Index}\mathrm{at}\mathrm{Year}\mathrm{End}}\\ & =& \frac{\$46,000}{115\%}\\ & =& \$40,000\end{array}$