Phillips Supply uses a periodic inventory system but needs to determine the appr
ID: 2475015 • Letter: P
Question
Phillips Supply uses a periodic inventory system but needs to determine the approximate amount of inventory at the end of each month without taking a physical inventory. Phillips has provided the following inventory data:
a. Estimate the cost of goods sold and the cost of the July 31 ending inventory using the retail method of evaluation.
b. Was the cost of Phillip's inventory, as a percentage of retail selling prices, higher or lower in July than it was in June? Explain
Cost Price Retail Selling Price Inventory of merchandise, June 3o $300,000 $500,000 Purchases during July $222,000 $400,000 Goods available for sale during July $522,000 $900,000 Net sales during July $600,000Explanation / Answer
5,00,000
COGS=Op.inventory+Purchases-Closing Inventory
=3,00,000+2,22,000-1,74,000
=3,48,000
b). Cost of Philip's inventory was lower in July as compared to June:
Ratio of cost to retail in June=3,00,000/5,00,000=60%
Ratio of cost to retail in July=5,22,000/9,00,000=58%
Cost Price RSP Inventory as on 30/06 3,00,0005,00,000
Purchases during July 2,22,000 4,00,000 Goods available for sale during July 5,22,000 9,00,000 Net Sales during July 6,00,000 Ending Inventory at retail 3,00,000 Ratio of Cost to retail 58% Ending Inventory at cost(3,00,000*58%) 1,74,000COGS=Op.inventory+Purchases-Closing Inventory
=3,00,000+2,22,000-1,74,000
=3,48,000