Debra's Card Shop uses the average cost retail inventory method to determine the ending inventory.Debra's accounting records for 2010 contained the following information: $\begin{array}{lll}&\text { Cost }&\text { Retail }\
\text { Purchases } & \$ 216,000 & \$ 317,500 \
\text { Sales } & & 350,000 \
\text { Beginning inventory } & 64,000 & 78,500 \
\text { Net markups } & & 12,000 \
\text { Net markclowns } & & 8,000
\end{array}$ In addition, sales returns for 2010 were $28, 000, and employee discounts taken were $6, 000.What is the cost of the ending inventory at December 31, 2010?

Question

Quizplus · Accepted Answer

To calculate the cost of the ending inventory using the average cost retail inventory method, we first adjust the retail value of goods to account for sales returns and employee discounts, then calculate the cost-to-retail ratio, and finally apply this ratio to the adjusted ending inventory at retail.1. Adjust the retail value of goods:- Total retail value of goods available for sale = Beginning inventory at retail + Purchases at retail + Net markups - Net markdowns= $78,500 + $317,500 + $12,000 - $8,000 = $400,0002. Adjust sales for returns and discounts:- Adjusted sales = Sales - Sales returns - Employee discounts= $350,000 - $28,000 - $6,000 = $316,0003. Calculate the ending inventory at retail:- Ending inventory at retail = Total retail value of goods available for sale - Adjusted sales= $400,000 - $316,000 = $84,0004. Calculate the cost-to-retail ratio:- Total cost of goods available for sale = Beginning inventory at cost + Purchases at cost= $64,000 + $216,000 = $280,000- Cost-to-retail ratio = Total cost of goods available for sale / Total retail value of goods available for sale= $280,000 / $400,000 = 0.75. Calculate the cost of the ending inventory:- Cost of ending inventory = Ending inventory at retail * Cost-to-retail ratio= $84,000 * 0.7 = $58,800However, none of the provided options match the calculated value. It seems there might have been a mistake in the calculation or in the interpretation of the options. Given the options, the correct approach involves adjusting the retail values and applying the cost-to-retail ratio correctly. If we reassess the calculation or the options provided, we might find that the correct answer should align with the methodology but due to a calculation oversight, the expected answer isn't listed. This suggests a need to reevaluate the calculation steps or the options provided for accuracy.

Debra's Card Shop Uses the Average Cost Retail Inventory Method