Question

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?

Answer 1

Answer:

$78,300

Explanation:

COMPUTATION OF GOODS AVAILABLE FOR SALE AT COST

                                                                         $        

Beginning inventory                                  80,000

Purchases                                                   65,000    

Goods available                                      145,000        

COMPUTATION OF GOODS AVAILABLE FOR SALE AT RETAIL PRICE

                                                                         $        

Beginning inventory                                 130,000

Purchases                                                  120,000    

Goods available                                     250,000      

Ending inventory at cost = (Cost/Retail Ratio) x Year-end Inventory at retail price

                                         =($145,000/$250,000) x $135,000

                                          = 58% x $135,000

                                           = $78,300