On the basis of the following data,what is the estimated cost of the merchandise inventory on May 31 using the retail method?
A)$250,000
B)$360,000
C)$172,500
D)$187,500

Question

On the basis of the following data,what is the estimated cost of the merchandise inventory on May 31 using the retail method?​ 
A)$250,000 
B)$360,000 
C)$172,500 
D)$187,500

Quizplus · Accepted Answer

To calculate the estimated cost of the merchandise inventory using the retail method, we need to multiply the cost-to-retail percentage with the ending inventory at retail price. 
Cost-to-retail percentage = Cost of goods sold at cost price ÷ Sales at retail price
Cost of goods sold at cost price = Sales at retail price - Gross profit 
Sales at retail price = Beginning inventory at retail price + Net purchases at retail price
Beginning inventory at retail price = $150,000
Net purchases at retail price = $400,000
Gross profit = $150,000
Sales at retail price = $150,000 + $400,000 = $550,000
Cost of goods sold at cost price = $550,000 - $150,000 = $400,000
Cost-to-retail percentage = $400,000 ÷ $550,000 = 0.727
Ending inventory at retail price = $187,500
Therefore, the estimated cost of the merchandise inventory on May 31 using the retail method = 0.727 x $187,500 = $136,312.50
Hence, the best choice is D, which is $187,500.

On the Basis of the Following Data,what Is the Estimated