Question

Passarant Company reports goods available for sale at cost, $156,000. Beginning inventory at retail is $60,000 and goods purchased during the period at retail were $180,000. Sales for the period amounted to $90,000.

Determine the estimated cost of the ending inventory using the retail inventory method.

Answer 1

RETAIL INVENTORY METHOD: This method is used by Retailers to derive at the Ending Inventory Balance by using the Cost to Sales ratio for computing the same. The steps are as follows;

Step 1: Cost of Goods available for Sale at Cost = $156,000 (given)

Step 2: Calculation of Cost of Goods available for Sale at Retail price = Beginning Inventory + Purchases
= 60,000 + 180,000
= $240,000

Step 3: Calculation of Cost to Retail Percentage = Cost/Retail price*100
= 156,000/240,000*100
= 65%

Step 4: Cost of Goods sold = Sale at Retail price*Cost to retail percentage
  = 90,000*65% = $58,500

Step 5: Therefore, Cost of Ending Inventory = Cost of Goods available for Sale at Cost - Cost of Goods sold
= 156,000 - 58,500
   = $97,500