Question

Hawkeye Auto Parts uses the average cost retail method to estimate inventories. Data for the first six months of 2021 include: beginning inventory at cost and retail were $66,000 and $111,000, net purchases at cost and retail were $796,000 and $1,311,000, and sales during the first six months totaled $811,000. The estimated inventory at June 30, 2021, would be:

Answer 1

$372,710

Step-by-step explanation:

For determining the ending inventory first we need to do following computations which are given below:

As per cost method

Goods available for sale

= Beginning inventory + Net Purchase for the year

= $66,000 + $796,000

= $862,000

Under Retail method

Goods available for sale:

= Beginning inventory + Net Purchases for the year

= $111,000 + $1,311,000

= $1,422,000

Now

Cost to retail ratio is

= $862,000 ÷ $1,422,000

= 61%

And, Estimated ending inventory as per retail

= Goods available for sale at Retail - Net sales

= $1,422,000 - $811,000

= $611,000

Therefore, Estimated ending inventory as per cost is

= Estimated ending inventory at retail × Cost to retail ratio

= $611,000 × 0.61

= $372,710