Asked by Jasmine Renteria on May 10, 2024
Verified
Compute the cost of ending inventory using the retail method when goods available for sale at cost are $10,000, retail is $27,000, and sales at retail equal $23,000. What will the cost ratio be? What will the cost of ending inventory be?
A) Cost ratio 37%; ending inventory $4,000
B) Cost ratio 43%; ending inventory $17,000
C) Cost ratio 85%; ending inventory $8,520
D) Cost ratio 37%; ending inventory $1,480
Retail Method
An inventory valuation method used in retail, estimating the ending inventory value by applying a cost-to-retail percentage to the sales at retail.
Cost Ratio
A measure used to evaluate the efficiency and profitability of a company, calculated as the cost of goods sold divided by net sales.
Ending Inventory
The value of goods available for sale at the end of an accounting period, calculated for cost of goods sold and financial reporting purposes.
- Determine the closing inventory and its impact on the financial statements.
- Analyze the utility of the retail approach for determining final inventory values.
Verified Answer
JM
James Martinez-BurneyMay 11, 2024
Final Answer :
D
Explanation :
The cost ratio is calculated as the cost of goods available for sale divided by the retail value of goods available for sale, which is $10,000 / $27,000 = 37%. The ending inventory at retail is the beginning inventory at retail minus sales, which is $27,000 - $23,000 = $4,000. The cost of ending inventory is then the ending inventory at retail times the cost ratio, which is $4,000 * 37% = $1,480.
Learning Objectives
- Determine the closing inventory and its impact on the financial statements.
- Analyze the utility of the retail approach for determining final inventory values.