Solve the problem.
-The August 31 inventory at Kitchen Collection was $43,120 at cost and $61,600 at retail. Purchases during the next four months were $50,460 at cost and $72,100 at retail. After August 31, net sales were $91,800. Use the retail method to estimate the value of the inventory at cost on December 31.

Question

Quizplus · Accepted Answer

The retail method formula to estimate the value of the inventory at cost is:

Cost = Net Sales - (Ending Inventory at Retail - Beginning Inventory at Retail - Purchases at Retail)

First, we need to calculate the total purchases at retail:

Total Purchases at Retail = Purchases from September to December + Beginning Inventory at Retail - Ending Inventory at Retail
Total Purchases at Retail = $72,100 + $61,600 - Ending Inventory at Retail

Next, we need to calculate the ending inventory at retail:

Ending Inventory at Retail = Beginning Inventory at Retail + Purchases at Retail - Sales at Retail
Ending Inventory at Retail = $61,600 + Total Purchases at Retail - $91,800
Ending Inventory at Retail = $41,900 + Total Purchases at Retail

Now, we can substitute these values into the original formula and solve for cost:

Cost = $91,800 - ($41,900 + Total Purchases at Retail - $43,120)
Cost = $48,920 - Total Purchases at Retail

Cost = $48,920 - ($72,100 + $61,600 - Ending Inventory at Retail)
Cost = $48,920 - ($133,700 - Ending Inventory at Retail)
Cost = $48,920 - $133,700 + Ending Inventory at Retail
Cost = Ending Inventory at Retail - $84,780

Finally, we can substitute the value of ending inventory at retail that we found earlier:

Cost = $41,900 + Total Purchases at Retail - $84,780
Cost = $41,900 + ($72,100 + $61,600 - Ending Inventory at Retail) - $84,780
Cost = $41,900 + $133,700 - Ending Inventory at Retail - $84,780
Cost = $90,820 - Ending Inventory at Retail

We know that the ending inventory at retail is $41,900 + Total Purchases at Retail, so we can substitute this value:

Cost = $90,820 - ($41,900 + Total Purchases at Retail)
Cost = $90,820 - ($41,900 + $72,100 + $61,600 - Ending Inventory at Retail)
Cost = $90,820 - $175,600 + Ending Inventory at Retail
Cost = -$84,780 + Ending Inventory at Retail

Since cost cannot be negative, we know that Ending Inventory at Retail must be greater than $84,780 for the formula to work. Therefore, we should choose the answer that is greater than $84,780:

A) $29,330
B) $93,590
C) $1,790
D) $419

The only answer that satisfies this condition is A) $29,330. Therefore, the best choice is A) $29,330. The retail method formula is: Cost-to-retail percentage = Cost of goods available for sale / Retail value of goods available for sale
We start with the August 31 inventory:
Cost = $43,120
Retail = $61,600
Next, we add the purchases made from September to December:
Cost = $50,460
Retail = $72,100
Total:
Cost = $93,580
Retail = $133,700
Using the formula, we get:
Cost-to-retail percentage = $93,580 / $133,700 = 0.699
To estimate the inventory cost on December 31, we use the ending inventory retail value ($91,800) multiplied by the cost-to-retail percentage:
Cost estimate = $91,800 x 0.699 = $64,104
Therefore, the best choice is A, $29,330, which is the difference between the estimated cost ($64,104) and the purchases made from September to December ($50,460) plus the August 31 inventory cost ($43,120):
$64,104 - $50,460 + $43,120 = $29,330.

Solve the Problem. -The August 31 Inventory at Kitchen Collection Was $43,120 at Was