Question

Fashion house uses the retail method to estimate ending inventory in his monthly financial statements the following information is available for the month end of July 1 sales 200,000 immature July 1 171,000 and 300,000 net purchases 90,000 and 150,000 goods available for sale 261,000 and 450,000 using the retail method

Answer 1

If we used the retail method to estimate the ending inventory first we get the given of the problem that can be used in solving.
Given
Sales - 200,000
Goods available for sale - 261,000 (cost) & 450,000 (retail)

First, we need to get the cost of retail ratio. the formula is
Cost to Retail ratio= Cost/ Retail
261,000
CRR= ------------- = 0.58
450,000

Next is to get the ending inventory by following this steps
Cost Retail
Cost of Goods Available for Sale $261,000 $450,000
- Sales $200,000
------------------
Ending Inventory $250,000
x Cost to Retail Ratio .58
------------------
Ending Inventory $145,000

So, the estimated ending inventory for the month of July is $145,000.