On the basis of the following data, what is the estimated cost of the merchandise inventory on May 31 using the retail method?
A) $250,000
B) $360,000
C) $172,500
D) $187,500

Question

On the basis of the following data, what is the estimated cost of the merchandise inventory on May 31 using the retail method? 
A) $250,000 
B) $360,000 
C) $172,500 
D) $187,500

Quizplus · Accepted Answer

Using the retail method, we first need to find the cost-to-retail percentage:

Cost-to-retail percentage = Cost of goods sold ÷ Retail sales
Cost of goods sold = $1,000,000
Retail sales = $2,000,000
Cost-to-retail percentage = $1,000,000 ÷ $2,000,000 = 0.5 or 50%

Next, we need to find the estimated cost of the merchandise inventory:

Estimated cost of inventory = Retail inventory × Cost-to-retail percentage
Retail inventory on May 31 = $375,000
Estimated cost of inventory = $375,000 × 50% = $187,500

Therefore, the estimated cost of the merchandise inventory on May 31 using the retail method is $187,500. The best choice is D.

On the Basis of the Following Data, What Is the Estimated