Question

Marilee's Electronics uses a periodic inventory system and the average cost retail method to estimate ending inventory and cost of goods sold. The following data is available from the company records for the month of June 2016: Cost Retail Beginning inventory $ 80,000 $130,000 Net purchases 261,000 500,000 Net markups 25,000 Net markdowns 35,000 Net sales 520,000 To the nearest thousand, estimated ending inventory is: A. $55,000. B. $52,000. C. $57,000. D. None of these answer choices are correct.

Answer 1

Answer:

$55,000

Explanation:

For calculating the estimated ending inventory we required to do the following computations which are shown below:

Using cost method

Goods available for sale:

= Beginning inventory + Purchases

= $80,000 + $261,000

= $341,000

Using retail method

Goods available for sale:

= Beginning inventory + Purchases  + Net markups - Net markdowns

= $130,000 + $500,000 + $25,000 - $35,000

= $620,000

Now

Cost to retail ratio = $341,000 ÷ $620,000

                              = 0.55

Now

Estimated ending inventory at retail

= Goods available for sale under Retail method - Net Sales revenue

= $620,000 - $520,000

= $100,000

So,

Estimated ending inventory

= Estimated ending inventory at retail × Cost to retail ratio

= $100,000 × 0.55

= $55,000