E9-18B (Retail Inventory Method) Presented below is information related to McKenna Company.

E9-18B (Retail Inventory Method) Presented below is information related to McKenna Company.

                                               Cost                    Retail

Beginning inventory           $ 81,000              $110,000

Purchases (net)                 176,000                305,000

Net markups                                                      36,000

Net markdowns                                                 22,000

Sales                                                                320,000

Instructions

(a) Compute the ending inventory at retail.

(b) Compute a cost-to-retail percentage (round to two decimals) under the following conditions.

(1) Excluding both markups and markdowns.

(2) Excluding markups but including markdowns.

(3) Excluding markdowns but including markups.

(4) Including both markdowns and markups.

(c) Which of the methods in (b) above (1, 2, 3, or 4) does the following?

(1) Provides the most conservative estimate of ending inventory.

(2) Provides an approximation of lower-of-cost-or-market.

(3) Is used in the conventional retail method.

(d) Compute ending inventory at lower-of-cost-or-market (round to nearest dollar).

(e) Compute cost of goods sold based on (d).

(f) Compute gross margin based on (d).