On the basis of the following data, what is the estimated cost of the inventory on May 31 using the retail method? $$\begin{array} { l l r r }
& & \text { Cost } & \text { Retail } \
\text { May 1 } & \text { Inventory } & \$ 125,000 & \$ 166,667 \
\text { May 1-31 } & \text { Purchases } & 235,000 & 313,333 \
\text { May 1-31 } & \text { Sales } & & 230,000
\end{array}$$
A) $250,000
B) $360,000
C) $172,500
D) $187,500

Question

On the basis of the following data, what is the estimated cost of the inventory on May 31 using the retail method? $$\begin{array} { l l r r } 
& & \text { Cost } & \text { Retail } \
\text { May 1 } & \text { Inventory } & \$ 125,000 & \$ 166,667 \
\text { May 1-31 } & \text { Purchases } & 235,000 & 313,333 \
\text { May 1-31 } & \text { Sales } & & 230,000
\end{array}$$  
A) $250,000
B) $360,000
C) $172,500
D) $187,500

Quizplus · Accepted Answer

The retail method estimates the ending inventory value by using a cost-to-retail price ratio. First, calculate the cost and retail value of goods available for sale: Cost = $125,000 (beginning inventory) + $235,000 (purchases) = $360,000. Retail = $166,667 (beginning inventory) + $313,333 (purchases) = $480,000. Next, calculate the cost-to-retail ratio: $360,000 / $480,000 = 0.75. Then, subtract sales from the total retail value to find the ending inventory at retail: $480,000 - $230,000 = $250,000. Finally, apply the cost-to-retail ratio to estimate the ending inventory at cost: $250,000 * 0.75 = $187,500.

On the Basis of the Following Data, What Is the Estimated