Lacy's Linen Mart uses the average cost retail method to estimate inventories.Data for the first six months of 2016 include: beginning inventory at cost and retail were $60,000 and $120,000,net purchases at cost and retail were $312,000 and $480,000,and sales during the first six months totaled $490,000.The estimated inventory at June 30,2016,would be:
A)$ 68,200.
B)$ 55,000.
C)$ 71,500.
D)$ 63,250.

Question

Quizplus · Accepted Answer

The average cost retail method is used to estimate inventories. The formula for this method is:Estimated inventory at cost = (Beginning inventory at cost + Net purchases at cost) x (Ending inventory at retail / (Beginning inventory at retail + Net purchases at retail))In this case, the beginning inventory at cost is $60,000, the net purchases at cost are $312,000, the ending inventory at retail is $120,000, and the net purchases at retail are $480,000.Plugging these values into the formula, we get:Estimated inventory at cost = (60,000 + 312,000) x (120,000 / (120,000 + 480,000))= 372,000 x (120,000 / 600,000)= 372,000 x 0.2= $68,200Therefore, the estimated inventory at June 30, 2016, would be $68,200.

Lacy's Linen Mart Uses the Average Cost Retail Method to Estimate