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 $400,000 and goods were sold during the period for $250,000. The estimated cost of the ending inventory is
A) $150,000.
B) $300,000.
C) $112,500.
D) $200,000.

Question

Quizplus · Accepted Answer

To calculate the estimated cost of ending inventory, we need to use the formula:

Ending Inventory at Retail * Cost-to-Retail Ratio = Estimated Cost of Ending Inventory

We are given the following information:
- Cost-to-Retail Ratio = 75%
- Goods available for sale at retail = $400,000
- Goods were sold during the period for $250,000

To calculate the ending inventory at retail, we can use the following formula:
Ending Inventory at Retail = Goods available for sale at retail - Goods sold during the period

Ending Inventory at Retail = $400,000 - $250,000
Ending Inventory at Retail = $150,000

Now, we can plug this into the formula for estimated cost of ending inventory:

Estimated Cost of Ending Inventory = Ending Inventory at Retail * Cost-to-Retail Ratio
Estimated Cost of Ending Inventory = $150,000 * 75%
Estimated Cost of Ending Inventory = $112,500

Therefore, the estimated cost of the ending inventory is $112,500, which is answer choice C.

Tucker Department Store Utilizes the Retail Inventory Method to Estimate