Maine Co.uses the retail inventory method to estimate its inventory for interim statement purposes.Data relating to the calculation of the inventory at July 31, 2017, are as follows: Under the lower of average cost and market method, Maine's estimated inventory at July 31, 2017, is
A)$85,000.
B)$119,000.
C)$133,000.
D)$136,000.

Question

Maine Co.uses the retail inventory method to estimate its inventory for interim statement purposes.Data relating to the calculation of the inventory at July 31, 2017, are as follows:  Under the lower of average cost and market method, Maine's estimated inventory at July 31, 2017, is
A)$85,000. 
B)$119,000. 
C)$133,000. 
D)$136,000.

Quizplus · Accepted Answer

The lower of average cost and market method requires Maine Co. to compare the cost of the inventory to its market value, which is the current replacement cost. In this case, the cost of the inventory is $123,000 (calculated as beginning inventory of $102,000 plus purchases of $764,000 minus sales of $743,000) and the market value is $119,000 (the cost of the 6,000 units on hand, the maximum amount that could be sold at July 31, is $119,000). Therefore, the estimated inventory at July 31, 2017, is $119,000.

Maine Couses the Retail Inventory Method to Estimate Its Inventory for for Interim