Under the retail inventory method,if the gross profit ratio is 40% and ending inventory at retail is $45,000,then estimated ending inventory is $18,000.

Question

Quizplus · Accepted Answer

To estimate the ending inventory using the retail inventory method, we use the following formula:

Ending inventory at cost = Ending inventory at retail x Cost-to-retail ratio

Cost-to-retail ratio = (1 - Gross profit ratio)

Using the given information, we can calculate the cost-to-retail ratio as follows:

Cost-to-retail ratio = 1 - 0.4 = 0.6

Using this ratio, we can estimate the ending inventory at cost as follows:

Ending inventory at cost = Ending inventory at retail x Cost-to-retail ratio
Ending inventory at cost = $45,000 x 0.6
Ending inventory at cost = $27,000

Therefore, the estimated ending inventory is $27,000, not $18,000.

Under the Retail Inventory Method,if the Gross Profit Ratio Is