To calculate the ending inventory and cost of goods sold (COGS) using the VALUE LIFO retail method, we follow these steps:
- Calculate the values required to determine ending inventory at retail. We'll compile the total retail sales, total retail purchases, and the starting inventory.
Step 1: Calculate Total Retail Values
-
Beginning Inventory:
- Cost: $84
- Retail: $120
-
Purchases:
- Cost: $632
- Retail: $1105
- Freight In: $29 (This is added to the purchases cost but has no retail value)
- Purchase Returns: $1 (This is subtracted from both cost and retail)
-
Net Markups:
- Cost: $3
- Retail: $0 (This does not affect the retail balance)
-
Net Markdowns:
- Cost: $7
- Retail: $0 (This does not affect the retail balance)
-
Net Sales:
- Cost: $0
- Retail: $950
Step 2: Calculate the Retail Ending Inventory
Total retail after transactions:
-
To start with: \[ \text{Total Beginning Inventory (Retail)} = 120 \]
-
Add Purchases: \[ 120 + 1105 = 1225 \]
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Adjust for Purchase Returns: \[ 1225 - 1 = 1224 \]
-
Subtract Net Sales: \[ 1224 - 950 = 274 \]
So, Ending Inventory at Retail = $274
Step 3: Calculate Cost-to-Retail Percentage
Total Cost:
-
Beginning Inventory Cost: $84
-
Purchases Cost: \[ 632 + 29 - 1 = 660 \]
-
Total Cost After All Adjustments: \[ 84 + 660 = 744 \]
Cost-to-Retail Percentage: \[ \text{Cost-to-Retail Percentage} = \frac{\text{Total Cost}}{\text{Total Retail}} = \frac{744}{1224} \approx 0.609 \]
Step 4: Calculate Ending Inventory at Cost
To find the ending inventory at cost: \[ \text{Ending Inventory at Cost} = \text{Ending Inventory at Retail} \times \text{Cost-to-Retail Percentage} \] \[ \text{Ending Inventory at Cost} = 274 \times 0.609 \approx 167 \]
Step 5: Calculate Cost of Goods Sold (COGS)
Cost of Goods Sold (COGS) = Total Cost - Ending Inventory at Cost \[ \text{COGS} = 744 - 167 = 577 \]
Final Results:
- Ending Inventory at Cost: $167
- Cost of Goods Sold (COGS): $577
Thus, rounding to the nearest whole dollar:
- Ending Inventory: $167
- COGS: $577
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