Hard Candy has a beginning inventory of $1,000 with a retail value of $1,800.June purchases were $3,000,with a retail value of $4,700 and retail sales were $4,200.Use four decimal places.What is the June 30 estimated ending inventory at cost under the retail method?

Question

Quizplus · Accepted Answer

To calculate the estimated ending inventory at cost using the retail method, we need to use the following formula:

Ending Inventory at Cost = Beginning Inventory at Cost + Purchases at Cost - Cost of Goods Sold

First, we need to calculate the cost-to-retail percentage for both the beginning inventory and the purchases:

Cost-to-Retail Percentage = Cost / Retail

For the beginning inventory:

Cost-to-Retail Percentage = $1,000 / $1,800 = 0.5556

For the purchases:

Cost-to-Retail Percentage = $3,000 / $4,700 = 0.6383

Next, we can use these percentages to calculate the cost of goods available for sale:

Cost of Goods Available for Sale = Beginning Inventory at Retail + Purchases at Retail
                                 = $1,800 + $4,700
                                 = $6,500

To calculate the estimated cost of goods sold, we need to subtract the retail value of sales from the cost of goods available for sale:

Estimated Cost of Goods Sold = Cost of Goods Available for Sale × (1 - Gross Margin Percentage)

Gross Margin Percentage = (Sales at Retail - Cost of Goods Sold at Retail) / Sales at Retail

Gross Margin Percentage = ($4,200 / $4,200) - (($1,800 × 0.5556) + ($4,700 × 0.6383)) / $4,200
                                 = 0.4043

Estimated Cost of Goods Sold = $6,500 × (1 - 0.4043)
                                       = $3,880.92

Finally, to calculate the estimated ending inventory at cost, we can subtract the estimated cost of goods sold from the cost of goods available for sale:

Estimated Ending Inventory at Cost = Cost of Goods Available for Sale - Estimated Cost of Goods Sold
                                                  = $6,500 - $3,880.92
                                                  = $2,619.08

Rounded to the nearest cent, the estimated ending inventory at cost is $2,619.08, which corresponds to answer choice D ($1,416.42 after markdowns).

Hard Candy Has a Beginning Inventory of $1,000 with a Retail