Crosby Department Store estimates inventory by using the retail inventory method. The following information was developed: $\begin{array}{lrr}
& \underline{\text {At Cost}}& \underline{\text {At Retail}}\
\text { Beginning inventory } & \$ 465,000 & \$750,000\
\text { Goods purchased } & 900,000 & 1,350,000 \
\text { Net sales } & & 1,500,000
\end{array}$
The estimated cost of the ending inventory is
A) $210000.
B) $372000.
C) $390000.
D) $400000.

Question

Crosby Department Store estimates inventory by using the retail inventory method. The following information was developed: $\begin{array}{lrr}
& \underline{\text {At Cost}}& \underline{\text {At Retail}}\
\text { Beginning inventory } & \$ 465,000 & \$750,000\
\text { Goods purchased } & 900,000 & 1,350,000 \
\text { Net sales } & & 1,500,000
\end{array}$
 The estimated cost of the ending inventory is
A) $210000.
B) $372000.
C) $390000.
D) $400000.

Quizplus · Accepted Answer

The estimated cost of the ending inventory is $390,000. This is calculated by multiplying the ending inventory at retail by the cost-to-retail ratio. The cost-to-retail ratio is calculated by dividing the cost of goods available for sale by the retail value of goods available for sale. In this case, the cost of goods available for sale is $1,365,000 (beginning inventory + goods purchased) and the retail value of goods available for sale is $2,100,000 (beginning inventory + goods purchased + net sales). Therefore, the cost-to-retail ratio is 65% ($1,365,000/$2,100,000). The ending inventory at retail is $600,000 (net sales - beginning inventory). Therefore, the estimated cost of the ending inventory is $390,000 ($600,000 x 65%).

Crosby Department Store Estimates Inventory by Using the Retail Inventory