Question

A business using the retail method of inventory costing determines that inventory at retail is $1,235,000. If the ratio of cost to retail price is 54%, what is the amount of inventory to be reported on the financial statements?

Answer 1

The amount of inventory to be reported on the financial statements is:

$666,900

Step-by-step explanation:

a) Data and Calculations:

Inventory at retail = $1,235,000

Ratio of cost to retail price = 54%

Amount of inventory to report = $1,235,000 * 54% = $666,900

b) Inventory is usually reported at the cost in the financial statements. While the business may ascertain its inventory at retail prices, it will still report the inventory at cost prices in the financial statements. Because of the many drawbacks of the retail method, it is not always used. For instance, the method does not work if the entity does not have a consistent markup across all products that are sold.