Question

Crane Sales Company uses the retail inventory method to value its merchandise inventory. The following information is available for the current year:
Cost Retail
Beginning inventory $ 30,000 $ 45,000
Purchases 190,000 260,000
Freight-in 2,500 —
Net markups — 8,500
Net markdowns — 10,000
Employee discounts — 1,000
Sales revenue — 205,000
If the ending inventory is to be valued at the lower-of-cost-or-market, what is the cost-to-retail ratio?
a) $220,000 ÷ $315,000
b) $222,500 ÷ $305,000
c) $222,500 ÷ $313,500
d) $222,500 ÷ $303,500

Answer 1

Answer:

c) $222,500 $313,500

Explanation:

Calculation for cost-to-retail ratio

COST

Beginning inventory $ 30,000

Add: Purchases $190,000

Add: Freight-in $2,500

Cost=$222,500

RETAIL

Beginning inventory $ 45,000

Add: Purchases $260,000

Add: Net markups $8,500

Retail = $313,500

Therefore the cost-to-retail ratio will be $222,500 $313,500