The records for the Clothing Department of Ji-Woon's Department Store are summarized as follows for the month of January:
1. Inventory, January 1: at retail, $28,000; at cost, $l8,000
2. Purchases in January: at retail, $147,000; at cost, $110,000
3. Freight-in: $6,000
4. Purchase returns: at retail, $3,500; at cost, $2,700
5. Purchase allowances: $2,200
6. Transfers in from suburban branch: at retail, $13,000; at cost, $9,200
7. Net markups: $8,000
8. Net markdowns: $4,000
9. Inventory losses due to normal breakage, etc.: at retail, $400
10. Sales at retail: $121,000
11. Sales returns: $2,400
Instructions
(a) Estimate the inventory for this department as at January 31 at (1) retail and (2) the lower of average cost and market. Round the cost-to-retail ratio to two decimal places.
(b) Assume that a physical inventory count taken at retail prices after the close of business on January 31 indicated an inventory amount that is $450 less than what was estimated in (a) part (1). What could have caused this discrepancy?