Chocolate Heaven had the following data for November: $\begin{array} { | l | r | r | }
\hline & \text { Cost Price } & \text { Retail Price } \
\hline \text { Beginning inventory } & \$ 8,000 & \$ 13,000 \
\hline \text { Purchases } & 18,000 & 25,000 \
\hline \text { Sales } & & 30,000 \
\hline
\end{array}$ The cost of the estimated inventory on November 30 under the retail method is:

Question

Chocolate Heaven had the following data for November: $\begin{array} { | l | r | r | } 
\hline & \text { Cost Price } & \text { Retail Price } \
\hline \text { Beginning inventory } & \$ 8,000 & \$ 13,000 \
\hline \text { Purchases } & 18,000 & 25,000 \
\hline \text { Sales } & & 30,000 \
\hline
\end{array}$ The cost of the estimated inventory on November 30 under the retail method is:

Quizplus · Accepted Answer

The retail method estimates ending inventory cost by using a cost-to-retail price ratio. First, calculate the cost-to-retail price ratio: $$ \text{Cost-to-Retail Price Ratio} = \frac{\text{Beginning Inventory Cost} + \text{Purchases Cost}}{\text{Beginning Inventory Retail Price} + \text{Purchases Retail Price}} = \frac{8,000 + 18,000}{13,000 + 25,000} = \frac{26,000}{38,000} = 0.6842. $$ Then, subtract sales from the total retail price to find the ending inventory at retail price: $$ \text{Ending Inventory at Retail Price} = \text{Beginning Inventory Retail Price} + \text{Purchases Retail Price} - \text{Sales} = 13,000 + 25,000 - 30,000 = 8,000. $$ Finally, apply the cost-to-retail price ratio to estimate the ending inventory cost: $$ \text{Estimated Ending Inventory Cost} = \text{Ending Inventory at Retail Price} \times \text{Cost-to-Retail Price Ratio} = 8,000 \times 0.6842 = 5,473.6. $$ The closest answer provided is $5,440, so the correct choice is A.

Chocolate Heaven Had the Following Data for November The Cost of the Estimated Inventory on November 30 Under