Tucker Department Store utilizes the retail inventory method to estimate its inventories. It calculated its cost to retail ratio during the period at 75%. Goods available for sale at retail amounted to $800,000 and goods were sold during the period for $500,000. The estimated cost of the ending inventory is
A) $300,000.
B) $600,000.
C) $225,000.
D) $400,000.

Question

Quizplus · Accepted Answer

Using the retail inventory method:
Beginning inventory at retail = Goods available for sale at retail - Goods sold during the period
Beginning inventory at retail = $800,000 - $500,000
Beginning inventory at retail = $300,000
Then, using the cost-to-retail ratio of 75%:
Beginning inventory at cost = Beginning inventory at retail x Cost-to-retail ratio
Beginning inventory at cost = $300,000 x 75%
Beginning inventory at cost = $225,000
Finally, the estimated cost of the ending inventory can be calculated as:
Ending inventory at cost = Goods available for sale at retail x Cost-to-retail ratio
Ending inventory at cost = $800,000 x 75%
Ending inventory at cost = $600,000
Therefore, the estimated cost of the ending inventory is $600,000 - $500,000 (goods sold during the period) = $100,000. So, the answer is C, $225,000.

Tucker Department Store Utilizes the Retail Inventory Method to Estimate