Question

Murdock Industries uses a periodic inventory system and the LIFO retail method to estimate its ending inventories. The following data has been summarized for December 31, 2018:

	Cost			Retail
Inventory, January 1	$	115,000		$	164,000
Purchases		326,880			539,500
Net markups					14,500
Net markdowns					8,700
Net sales					521,000

Required:
Estimate the LIFO cost of ending inventory. Assume stable retail prices during the period. (Do not round your "Cost-to-retail percentage" and round your final answer to the nearest whole number.)

Answer 1

Solution

Murdock Industries

Estimation of the LIFO cost of ending inventory:

	Cost	Retail
Inventory, Jan 1	$115,000	$164,000
Purchases	$326,880	$539,500
Net Markups		$14,500
Net Markdowns		($8,700)
Goods Available for Sale	$326,880	$545,300
Goods available for sale	$441,880	$709,300
Cost to retail percentage	326,880/545,300 = 60%
Net Sales		($521,000)
Ending inventory at retail		$188,300
Estimated ending inventory at cost:
	Retail	Cost
Beginning inventory	$164,000	$115,000
Current period layer	$24,300	$14,580
Total	$188,300	$129,580

Note: since the LIFO method is known to be used, the sales units comprises only the purchases and not the beginning inventory.

Computations:

Current period layer = ending inventory at retail – beginning inventory at retail

= 188,300 – 164,000 = $24,300

Current period layer = $24,300 x 60% = $14,580

Estimated ending inventory at cost = $129,580