Crosby Department Store estimates inventory by using the retail inventory method. The following information was developed: $$\begin{array}{ll} &\text {at cost}&\text {at retail}\
\hline \text {begining inventory }&\$465,000&\$750,000\
\text { goods purchases}&900,000&1,350,000\
\text {net sales }&&1,500,000
\end{array}$$ The estimated cost of the ending inventory is

Question

Crosby Department Store estimates inventory by using the retail inventory method. The following information was developed: $$\begin{array}{ll}   &\text {at cost}&\text {at retail}\
\hline \text {begining inventory }&\$465,000&\$750,000\
\text { goods purchases}&900,000&1,350,000\
\text {net sales }&&1,500,000
\end{array}$$ The estimated cost of the ending inventory is

Quizplus · Accepted Answer

To calculate the estimated cost of the ending inventory using the retail inventory method, we need to first calculate the cost-to-retail percentage by dividing the cost of goods available for sale by the retail value of the goods available for sale:

Cost-to-retail percentage = Cost of goods available for sale / Retail value of goods available for sale
Cost-to-retail percentage = ($100,000 + $400,000) / ($200,000 + $800,000)
Cost-to-retail percentage = $500,000 / $1,000,000
Cost-to-retail percentage = 0.5 or 50%

Then, we multiply the ending inventory at retail by the cost-to-retail percentage to get the estimated cost of the ending inventory:

Estimated cost of ending inventory = Ending inventory at retail x Cost-to-retail percentage
Estimated cost of ending inventory = $780,000 x 0.5
Estimated cost of ending inventory = $390,000

Therefore, the best choice is C: $390,000.

Crosby Department Store Estimates Inventory by Using the Retail Inventory