Hawkeye Auto Parts uses the retail method to estimate inventories. Data for the first six months of 2009 include: beginning inventory at cost and retail were $55,000 and $100,000, net purchases at cost and retail were $785,000 and $1,300,000, and sales during the first six months totaled $800,000. The estimated inventory at June 30, 2009, would be:
A)$330,000.
B)$360,000.
C)$362,300.
D)None of these is correct.

Question

Quizplus · Accepted Answer

The estimated inventory is calculated using the retail method. First, calculate the cost-to-retail ratio: (Beginning Inventory Cost + Net Purchases Cost) / (Beginning Inventory Retail + Net Purchases Retail) = ($55,000 + $785,000) / ($100,000 + $1,300,000) = $840,000 / $1,400,000 = 0.6. Then, calculate the ending inventory at retail: (Beginning Inventory Retail + Net Purchases Retail - Sales) = $100,000 + $1,300,000 - $800,000 = $600,000. Finally, apply the cost-to-retail ratio to the ending inventory at retail: $600,000 * 0.6 = $360,000.

Hawkeye Auto Parts Uses the Retail Method to Estimate Inventories