Problem 2: Inventory Retail Method of Estimating Inventory (12 points)

Vancy Company uses the conventional retail inventory method (lower of cost or market) to

estimate its ending inventory. Here is information for the current year.

At Cost At Retail

Beginning Inventory .........................$70,800 .........$ 98,500

Purchases..........................................219,500 ..........294,000

Purchase returns and allowances .........4,300 ..............5,500

Markups......................................................... ............63,000

Markup cancellations .................................... ............10,000

Markdowns.................................................... ............35,000

Markdown cancellations ............................... ............20,000

Sales............................................................... ..........345,000

Sales returns and allowances ........................ ............10,000

Required:

1. What is the cost/retail ratio for the current year?

Show your computations!

2. Disregard your answer to part (1) and assume that the cost/retail ratio is 70%. What is

the estimated cost of the ending inventory?

Show your computations!