The merchandise available for sale was $90,000 and was marked to sell at a retail price of
$125,000. Sales during the period totaled $80,000. If the retail method is used, the estimated cost of the ending inventory is

Question

Quizplus · Accepted Answer

According to the retail method of inventory valuation, the cost to retail percentage is calculated by dividing the cost of goods available for sale by the retail value of 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 = 90,000 / 125,000 
Cost to retail percentage = 0.72 or 72%

Using this percentage, we can estimate the cost of the ending inventory as: 
Cost of ending inventory = Ending inventory at retail value × Cost to retail percentage

Ending inventory at retail value = $125,000 - $80,000 = $45,000

Cost of ending inventory = $45,000 × 0.72 = $32,400

Therefore, the answer is B, $32,400.

The Merchandise Available for Sale Was $90,000 and Was Marked