Lacy's Linen Mart uses the retail method to estimate inventories. Data for the first six months of 2013 include: beginning inventory at cost and retail were $60,000 and $120,000, net purchases at cost and retail were $312,000 and $480,000, and sales during the first six months totaled $490,000. The estimated inventory at June 30, 2013, would be:
A)$68,200.
B)$55,000.
C)$71,500.
D)$63,250.

Question

Quizplus · Accepted Answer

The retail method is used to estimate the cost of ending inventory. The formula for the retail method is:Ending inventory at retail = Beginning inventory at retail + Net purchases at retail - SalesEnding inventory at cost = Ending inventory at retail x (Beginning inventory at cost / Beginning inventory at retail)Ending inventory at cost = $71,500 x ($60,000 / $120,000) = $68,200

Lacy's Linen Mart Uses the Retail Method to Estimate Inventories