Ch.9 continuation

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Ch.9 continuation
2013-11-19 23:07:21

Definitions and Examples
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  1. Gross Profit Relies on 3 assumptions:
    1.Beg.Inv + Purchases = total goods to be accounted for. 

    2. Goods not sold must be on hand.

    3. sales, reduced to cost, deducted from the sum of the opening inventory + Purchases = ending inventory
  2. Ex. GP Method
    Cetus Corp.has beginning inventory of $60k and purchases of 200k, both at cost. Sales at selling price amount to 280k. The GP on selling price is 30%
    • Beg.Inv. (at cost)                       60,000
    • Purchases (at cost)                    200,000
    •    Goods Available (at cost)         =260,000
    • Sales(at selling price)      280,000
    • Less GP(30% of 280k)      (84,000)
    •    Sales (at cost)                           196,000
    •      Approx.Inventory (at cost)       64,000
  3. GP percentage
    Stated as a % of selling price.
  4. GP % example:
    Article cost $15 and sells for $20, a gp of $5. What is the markup on retail and cost?
    Markup/retail=5/20=1/4=25% at retail

    Markup/cost=5/15=1/3=33 1/3 % on cost
  5. GP Method disadvantages
    • 1. Provides an estimate.
    • 2. uses past percentages in determining mark up. 
    • 3. Must be careful in applying a blanket gp rate.
  6. Retail Inventory method requires that the retailer keep a record of:
    • 1. total cost and retail value of goods purchased
    • 2. total cost and retail value of goods available for sales
    • 3. sales for the period
  7. Cost of retail ratio
    Divide the total good available for sale by total goods available at retail price
  8. 3 versions of retail inventory method
    1. Conventional Method

    2. Lifo retail

    3. Dollar value Lifo
  9. Markup in Retail method
    additional markup of the original retail price
  10. Markup cancellations
    decreases in prices of merchandise that the retailer had marked up above the original retail price

    occur when markdowns are later offset by increases in the prices of goods that the retailer had marked down
  11. markdowns
    decreases in original sales prices