INTERMEDIATE ACCOUNTING 1

AVERAGE COST METHOD

Cost Retail Amount
Purchases 1,180,000 1,500,000 Sales 1,428,000
Freight In 30,000 Sales Returns (56,000)
Purchase Discount (150,000) Employee discounts 2,600
Purchase Returns (4,000) (5,000) Normal Spoilage 400
Net Purchases 1,056,000 1,495,000 Net Sales 1,375,000

Cost Retail
Inventory, beg. 300,000 375,000
Net Purchases 1,056,000 1,495,000
Departmental Transfers In 2,000 3,000
Net Markups 18,000
Net Markdowns (5,000)
Abnormal Spoilage (8,000) (11,000)
TGAS 1,350,000 1,875,000
Net Sales (1,375,000)
1.) Ending Inventory @retail 500,000

TGAS @ COST
Average cost Ratio=
TGAS @ RETAIL
1,350,000
=
1,875,000
Average cost Ratio= 72%
COST OF SALES:
Ending Inventory @ retail 500,000 TGAS @ Cost 1,350,000
Multiply by: Average cost ratio 72% Ending Inventory @ cost (360,000)
1.) Ending Inventory @ cost 360,000 2.) COGS 990,000

Optional Reconciliation:
Net Sales 1,375,000
Multiply by: Average cost ratio 72%
COGS 990,000

FIFO COST METHOD

 TGAS−BEG . INVENTORY @COST
FIFO cost Ratio=
TGAS−BEG . INVENTORY @ RETAIL
1,350,000−300,000
= 1,875,000−375,000

FIFO cost Ratio= 70%

Ending Inventory @ retail 500,000

Multiply by: Average cost ratio 70%
1.) Ending Inventory @ cost 30,000

COST OF SALES:
TGAS @ Cost 1,350,000
Ending Inventory @ cost (360,000)
2.) COGS 1,000,000

Optional Reconciliation:
Net Sales 1,375,000
Less: Beg. Inventory @ retail (375,000)
Total 1,000,000
Multiply by: FIFO cost ratio 70%
Total 700,000
Add back: Beg. Inventory @ cost 300,000
COGS 1,000,000