Crane Sales Company uses the retail inventory method to value its merchandise inventory.The following information is available for the current year: If the ending inventory is to be valued at the lower-of-cost-or-net realizable value, what is the cost to retail ratio?

Question

Crane Sales Company uses the retail inventory method to value its merchandise inventory.The following information is available for the current year:  If the ending inventory is to be valued at the lower-of-cost-or-net realizable value, what is the cost to retail ratio?

Quizplus · Accepted Answer

To calculate the cost to retail ratio, we need to find the cost and retail values of the inventory. From the information given in the question, we know that the ending inventory at retail is $258,500. 
Using the retail inventory method, we can calculate the cost of the inventory as follows:

Beginning inventory at cost = $115,000 
Purchases at cost = $165,000 
Cost of goods available for sale = $280,000

Beginning inventory at retail = $150,000 
Purchases at retail = $230,000 
Goods available for sale at retail = $380,000

The cost to retail ratio is therefore:

Cost of goods available for sale ÷ Goods available for sale at retail = 
$280,000 ÷ $380,000 = 0.7368 or 73.68%

Therefore, the correct answer is B) $177,500 ÷ $258,500.

Crane Sales Company Uses the Retail Inventory Method to Value