Boxer Inc. uses the conventional retail method to determine its ending inventory at cost. Assume the beginning inventory at cost (retail) were $196,500 ($297,000), purchases during the current year at cost (retail) were $1,704,000 ($2,596,800), freight-in on these purchases totaled $79,500, sales during the current year totaled $2,333,000, and net markups were $207,000. What is the ending inventory value at cost?
A) $767,800.
B) $541,425.
C) $490,624.
D) $525,175.

Question

Quizplus · Accepted Answer

To find ending inventory at cost, we need to first calculate the Cost-to-Retail Percentage (CRT%), which is calculated as follows:

(Cost of Beginning Inventory + Cost of Purchases + Freight-in) / (Retail Value of Beginning Inventory + Retail Value of Purchases) x 100

($196,500 + $1,704,000 + $79,500) / ($297,000 + $2,596,800) x 100 = 65.4%

Next, we can calculate the Estimated Ending Inventory at Cost using the formula:

Ending Inventory at Retail x (100% - CRT%)

Retail value of beginning inventory + retail value of purchases - sales + net markups = $297,000 + $2,596,800 - $2,333,000 + $207,000 = $767,800

$767,800 x (100% - 65.4%) = $262,176

Finally, we can calculate Ending Inventory at Cost:

Retail Value - Estimated Markdowns x CRT%

$262,176 x 65.4% = $171,448

Thus, the ending inventory at cost is $490,624 (option C).

Boxer Inc Uses the Conventional Retail Method to Determine Its Ending