Question

On the basis of the following data, what is the estimated cost of the merchandise inventory on May 31 using the retail method?



Cost
Retail
May 1 Merchandise Inventory
$125,000
$166,667
May 1-31 Purchases (net)
235,000
313,333
May 1-31 Sales (net)
230,000
$250,000
$360,000
$172,500
$187,500

Answer 1

Answer: The ending inventory is $43,500

Explanation:

Cost. Retail

$ $

Beginning inventory. 125,000 166,667

Add :Purchases 235,000 313,333

-------------------- -----------------------

Cost of good available for sale 360,000 480,000

Cost to retail ratio

360,000 ÷ 480,000

= 0.75

Cost. Retail

$ $

Cost of good available for sale 360,000 480,000

Less:Sales. 230,000 250,000

360,000. 172,500

187,500

-------------------- ----------------

(417,500) 58,000

Ending inventory × 0.75 (58,000 × 0.75) = 43,500

Cost to retail ratio.

Ending inventory. $43,500