Answer: Option (a) is correct.
Explanation:
Ending inventory at retail:
= Total retail - net sales - markdown
= (Beginning inventory + purchases + freight-in + markups) - net sales - markdown
= ($396,000 + $2,200,000 + 0 + $48,000) - $2,000,000 - $72,000
= $572,000
Total cost = Beginning inventory + purchases + freight-in + markups
= $260,000 + $1,370,000 + $86,000 + 0
= $1,716,000
Cost to retail ratio:
= 0.6490 or 64.9%
Ending inventory at cost:
= Ending inventory at retail × Cost to retail ratio
= $572,000 × 64.9%
= $371,228