[Anonymous]

Union Corp. uses the first-in, first-out retail method of inventory valuation. The following information is available:

Cost Retail

Beginning inventory $12,000 $ 30,000

Purchases 60,000 110,000

Net additional markups 10,000

Net markdowns 20,000

Sales revenue 90,000

If the lower of cost or market rule is disregarded, what would be the estimated cost of the ending inventory?

A. $24,000

B. $20,800

C. $20,000

D. $19,200

The cost to retail ratio under FIFO is: [$60,000/($110,000 + $10,000 – $20,000)] = .60.

Ending inventory at retail is $30,000 + $110,000 + $10,000 – $20,000 – $90,000 = $40,000.

Ending inventory at cost, therefore, is .60($40,000) = $24,000.

---

The lesson I just went over said that you include beginning inventory for both cost and for retail in the cost-to-retail ratio, and you do not include markdowns in this ratio. This is completely different from the answer explanation. What just happened here?

[MikeHoncho]

The main thing to watch out for is wether or not the lower of cost or market (LCM) rule applies. Since the problem states LCM is disregarded, net markdowns are included in the calculation. Also since it is FIFO the cost ratio excludes cost of beginning inventory.

I believe the method you are referring to is average cost to retail ratio where LCM applies. This question asks for FIFO cost to retail, LCM is disregarded.

This is tricky stuff, I hope I explained it right…. it's been a while

Done: 5/22/14

"Always do sober what you said you'd do drunk. That will teach you to keep your mouth shut."
- Ernest Hemingway

[MikeHoncho]

The main thing to watch out for is wether or not the lower of cost or market (LCM) rule applies. Since the problem states LCM is disregarded, net markdowns are included in the calculation. Also since it is FIFO the cost ratio excludes cost of beginning inventory.

I believe the method you are referring to is average cost to retail ratio where LCM applies. This question asks for FIFO cost to retail, LCM is disregarded.

This is tricky stuff, I hope I explained it right…. it's been a while

Done: 5/22/14

"Always do sober what you said you'd do drunk. That will teach you to keep your mouth shut."
- Ernest Hemingway

[MustPass1988]

I'm using Becker and the retail method was only supplementary info and they said to read through it and “what sticks, sticks”. So hopefully, it's really not that imperative to know.

AUD: PASSED [81]; Expired, retaking August 23rd
BEC: PASSED [83]; Expired, retaking July 11th
REG: PASSED [83]
FAR: FAILED [64]; Retaking May 23rd

[MustPass1988]

I'm using Becker and the retail method was only supplementary info and they said to read through it and “what sticks, sticks”. So hopefully, it's really not that imperative to know.

AUD: PASSED [81]; Expired, retaking August 23rd
BEC: PASSED [83]; Expired, retaking July 11th
REG: PASSED [83]
FAR: FAILED [64]; Retaking May 23rd

[MikeHoncho]

I agree. If you are going to know anything about the retail method, I would know that formula you referred to (it's also called the conventional retail method so it's probably the most likely version to be tested).

Done: 5/22/14

"Always do sober what you said you'd do drunk. That will teach you to keep your mouth shut."
- Ernest Hemingway

[MikeHoncho]

I agree. If you are going to know anything about the retail method, I would know that formula you referred to (it's also called the conventional retail method so it's probably the most likely version to be tested).

Done: 5/22/14

"Always do sober what you said you'd do drunk. That will teach you to keep your mouth shut."
- Ernest Hemingway

[PocketsWithCash]

It's really not that important, do what Becker says and read it once – worst case scenario you get 1 or 2 questions. The time it would take to learn all the different retail inventory methods would be better spent on many other topics

FAR 97
REG 91
AUD 5/30/14
BEC 7/11/14

[PocketsWithCash]

It's really not that important, do what Becker says and read it once – worst case scenario you get 1 or 2 questions. The time it would take to learn all the different retail inventory methods would be better spent on many other topics

FAR 97
REG 91
AUD 5/30/14
BEC 7/11/14

[Yukkeko]

I agree with PocketsWithCash

Not worth the time and effort. I read through that appendix once, and just hoping i won't get a question on it.

Worst case you get 1 MCQ, which won't affect your grade very much as I don't think most people will get it correct.

It is also very unlikely (i'm not saying its impossible) there would be a sim on inventory method…

AUD - 99
BEC - 92
FAR - 97
REG - 94

Accounting

FAR (4/14/14) - 97
REG (11/17/14) - 94
BEC (11/30/14) - 92
AUD (2/28/15) - 99
TEARS!

[Yukkeko]

I agree with PocketsWithCash

Not worth the time and effort. I read through that appendix once, and just hoping i won't get a question on it.

Worst case you get 1 MCQ, which won't affect your grade very much as I don't think most people will get it correct.

It is also very unlikely (i'm not saying its impossible) there would be a sim on inventory method…

AUD - 99
BEC - 92
FAR - 97
REG - 94

Accounting

FAR (4/14/14) - 97
REG (11/17/14) - 94
BEC (11/30/14) - 92
AUD (2/28/15) - 99
TEARS!

[Author]

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