Smith Company uses the LIFO retail inventory method for inventory costing. Smith Company has beginning inventory with a cost of $60,000 and a retail value of $180,000. During the year, the company purchases goods with a cost basis of $20,000 and a retail basis of $70,000. Sales are $70,000 at retail. Net markups are $5,000 and net markdowns are $5,000. Under the LIFO retail inventory method, which cost-to-retail ratios are used to determine the cost of ending inventory?
A) beginning inventory 33.3%; new layer 28.57%
B) beginning inventory 33.3%; new layer 35.71%
C) beginning inventory 33.3%; new layer 33.3%
D) beginning inventory 33.3%; new layer 21.43%

Question

Quizplus · Accepted Answer

The beginning inventory cost-to-retail ratio is calculated as the beginning inventory cost divided by the beginning inventory retail value, which is $60,000/$180,000 = 33.3%. The new layer cost-to-retail ratio is calculated as the new layer cost divided by the new layer retail value, which is $20,000/$70,000 = 28.57%.

Smith Company Uses the LIFO Retail Inventory Method for Inventory