Question

On the basis of the following data, what is the estimated cost of the inventory on May 31 using the retail method?

Cost Retail

May 1 Inventory $125,000 $166,667

May 1-31 Purchases $235,000 313,333

May 1-31 Sales 230,000

a $250,000

b $187,500

c $172,500

d $360,000

Answer 1

To find the estimated cost of the inventory on May 31 using the retail method, we need to calculate the cost-to-retail ratio and multiply it by the cost of goods available for sale.

Step-by-step explanation:

To find the estimated cost of the inventory on May 31 using the retail method, we need to calculate the cost-to-retail ratio. The cost-to-retail ratio is determined by dividing the total cost of inventory by the total retail value of inventory. In this case, the May 1 inventory has a cost of $125,000 and a retail value of $166,667, giving us a cost-to-retail ratio of 0.75.

Next, we calculate the cost of goods available for sale by adding the cost of the May 1 inventory to the cost of purchases made between May 1-31, which is $360,000.

Finally, we multiply the cost of goods available for sale by the cost-to-retail ratio to get the estimated cost of the inventory on May 31, which is $360,000 x 0.75 = $270,000.