A company reports the following information regarding its inventory. Beginning inventory: cost is $80,000; retail is $130,000 Net purchases: cost is $65,000; retail is $120,000
Sales at retail: $145,000
The year-end inventory shows $135,000 worth of merchandise available at retail prices. What is the cost of the ending inventory calculated using the retail inventory method?
A) $78,300.
B) $73,125.
C) $135,000.
D) $72,900.
E) $105,000.

Question

Quizplus · Accepted Answer

The retail inventory method uses a ratio of cost to retail to estimate the cost of ending inventory. The ratio is calculated by dividing the beginning inventory cost by the beginning inventory retail value. This ratio is then multiplied by the ending inventory retail value to estimate the ending inventory cost.In this case, the beginning inventory cost is $80,000 and the beginning inventory retail value is $130,000. The ratio of cost to retail is therefore 80,000 / 130,000 = 0.6154. The ending inventory retail value is $135,000, so the estimated ending inventory cost is 0.6154 * 135,000 = $78,300.

A Company Reports the Following Information Regarding Its Inventory