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The following formula can be used to convert markup

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The following formula can be used to convert Markup on Cost to Gross Profit on Selling Price : If Gross Profit is 25% of Cost, then Gross Profit on Selling Price = 20%.

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9-16 The Retail Inventory Method Developed for retail operations like department stores. Uses both the retail value and cost of items for sale to calculate a cost to retail percentage. Objective: Convert ending inventory at retail to ending inventory at cost.
9-17 The Retail Inventory Method Term Meaning Initial markup Original amount of markup from cost to selling price. Additional markup Increase in selling price subsequent to initial markup. Markup cancellation Elimination of an additional markup. Markdown Reduction in selling price below the original selling price. Markdown cancellation Elimination of a markdown. Retail Terminology Retail Terminology Cost Flow Methods Average Cost Average LCM (Conventional Retail) LIFO Retail Dollar-value LIFO Retail

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9-18 Example: Burg, Inc. uses the retail inventory method to estimate ending inventory for its monthly financial statements. The following data pertain to a single department for the month of October 2013. COST RETAIL Beg. inventory, Oct. 1 52,000 \$ 78,000 \$ Purchases 272,000 423,000 Freight in 16,600 Purchase returns 5,600 8,000 Additional markups 9,000 Markup cancellations 2,000 Markdowns (net) 3,600 Normal spoilage 10,000 Sales 390,000 Instructions: Prepare a schedule computing estimated retail inventory using the following methods: (1) Average Cost (2) Average LCM (Conventional) Retail Inventory Method
9-19 Average Cost Method: Cost to COST RETAIL Retail % Beg. inventory 52,000 \$ 78,000 \$ Purchases 272,000 423,000 Freight in 16,600 Purchase returns (5,600) (8,000) Markdowns, net (3,600) Markups, net 7,000 Current year additions 283,000 418,400 Goods available for sale 335,000 496,400 67.49% Normal spoilage (10,000) Sales (390,000) Ending inventory at retail 96,400 \$ Ending inventory at Cost: 96,400 \$ x 67.49% = 65,056 \$ = / Retail Inventory Method

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9-20 Average LCM - Conventional Method: Cost to COST RETAIL Retail % Beg. inventory 52,000 \$ 78,000 \$ Purchases 272,000 423,000 Freight in 16,600 Purchase returns (5,600) (8,000) Markups, net 7,000 Current year additions 283,000 422,000 Goods available for sale 335,000 500,000 67.00% Markdowns, net (3,600) Normal spoilage (10,000) Sales (390,000) Ending inventory at retail 96,400 \$ Ending inventory at Cost: 96,400 \$ x 67.00% = 64,588 \$ = / Retail Inventory Method Markdowns provide evidence of a reduction in the utility of inventory
9-21 End of Chapter 9 – Part 1
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The following formula can be used to convert Markup on Cost...

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