Ortiz Department Store utilizes the retail inventory method to estimate its inventories. It calculated its cost to retail ratio during the period at 70%. Goods available for sale at retail amounted to $600,000 and net sales during the period for $440,000. The estimated cost of the ending inventory is

Question

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The cost to retail ratio is 70%, which means that the cost of goods sold is 70% of net sales. Net sales were $440,000, so the cost of goods sold is $440,000 x 70% = $308,000. The ending inventory is the difference between the goods available for sale at retail and the cost of goods sold, which is $600,000 - $308,000 = $292,000. However, the question asks for the estimated cost of the ending inventory, which is $292,000 x 70% = $112,000.

Ortiz Department Store Utilizes the Retail Inventory Method to Estimate