ACCT 201 Principles of Financial Accounting Practice Exam - Chapter 5 Reporting & Analyzing Inventories Dr. Fred Barbee Solution to Short-Problem #3

Short Problem #3

A company uses the retail inventory method and has the following information available concerning its most recent accounting period:

	At Cost	At Retail
Beginning-of-period inventory	$148,600	$245,200
Net Purchases	677,400	1,229,800
Sales		1,200,000

Required:

1. What is the cost-to-retail ratio using the retail method?
2. What is the estimated cost of the ending inventory?

Solution

1. What is the cost-to-retail ratio using the retail method?

   Beginning Inventory	$148,600	$245,200
   Net Purchases	677,400	1,229,800
   Cost of Goods Available for Sale	$826,000	$1,475,000

          The Cost-to-retail ratio is $826,000 / $1,475,000 = 56%.

2. What is the estimated cost of the ending inventory?

   Sales		$1,200,000
   Ending inventory at retail		$275,000
   Estimated cost of ending inventory (56% x $275,000)	$154,000