Garden World uses the retail method to estimate its monthly cost of goods sold and month-end inventory.At May 31,the accounting records indicate the cost of goods available for sale during the month (beginning inventory plus purchases)totaled $540,000.These goods had been priced for resale at $900,000.Sales in May totaled $480,000.The estimated inventory at May 31 is:
A)$540,000.
B)$252,000.
C)$420,000.
D)$288,000.

Question

Quizplus · Accepted Answer

To use the retail method, we need to calculate the cost-to-retail percentage (also known as the gross profit percentage). This is done by dividing the cost of goods sold by the selling price (revenue).
Cost of goods sold = $540,000
Selling price (revenue) = $900,000
Cost-to-retail percentage = 540,000 / 900,000 = 0.6 or 60%
Using this percentage, we can estimate the cost of the ending inventory by multiplying it by the retail value of the unsold inventory.
Ending inventory at retail = $420,000 ($900,000 - $480,000 sales)
Ending inventory at cost = 420,000 x 0.6 = $252,000
Therefore, the estimated inventory at May 31 is $252,000 (option B).

Garden World Uses the Retail Method to Estimate Its Monthly