Mishu Inc. uses the retail inventory method to value its merchandise inventory. The following information is available for 2014: What is Mishu's estimated ending inventory at cost?
A) ¥67,980,000
B) ¥132,000,000
C) ¥268,000,000
D) ¥400,000,000

Question

Mishu Inc. uses the retail inventory method to value its merchandise inventory. The following information is available for 2014:  What is Mishu's estimated ending inventory at cost?
A) ¥67,980,000 
B) ¥132,000,000 
C) ¥268,000,000 
D) ¥400,000,000

Quizplus · Accepted Answer

To calculate the estimated ending inventory at cost using the retail inventory method, we need to use the following formula: 
Ending Inventory at Cost = Ending Inventory at Retail x Cost to Retail Ratio

We know that:
- Ending Inventory at Retail = ¥338,000,000 
- Cost-to-Retail Ratio = Cost of Goods Available for Sale ÷ Retail Price of Goods Available for Sale

To calculate the cost of goods available for sale, we need to know the Beginning Inventory, Net Purchases and Net Sales. However, only purchases and sales are given explicitly in the question. Thus:
- Beginning Inventory = Cost of Goods Available for Sale - Net Purchases + Net Sales 
- Beginning Inventory = 361,000,000 - 175,000,000 + 198,000,000= 384,000,000
- Net Purchases = Purchases - Purchase Discounts - Purchase Returns and Allowances 
- Net Purchases = 200,000,000 - 4,000,000 - 16,000,000 = 180,000,000 
- Net Sales = Sales - Sales Returns and Allowances 
- Net Sales = 240,000,000 - 30,000,000 = 210,000,000

Now we can calculate the Cost-to-Retail Ratio:
- Cost of Goods Available for Sale = Beginning Inventory + Net Purchases 
- Cost of Goods Available for Sale = 384,000,000 + 180,000,000 = 564,000,000 
- Retail Price of Goods Available for Sale = Beginning Inventory + Net Purchases + Net Sales 
- Retail Price of Goods Available for Sale = 384,000,000 + 180,000,000 + 210,000,000= 774,000,000 
- Cost-to-Retail Ratio = Cost of Goods Available for Sale ÷ Retail Price of Goods Available for Sale 
- Cost-to-Retail Ratio = 564,000,000 ÷ 774,000,000 ≈ 0.728

Now we can calculate the Ending Inventory at Cost:
- Ending Inventory at Cost = Ending Inventory at Retail x Cost-to-Retail Ratio 
- Ending Inventory at Cost = ¥338,000,000 x 0.728 ≈ ¥246,304,000

Thus, Choice B is the correct answer.

Mishu Inc Uses the Retail Inventory Method to Value Its Merchandise