Question

James Sales Company uses the retail inventory method to value its merchandise inventory. The following information is available for the current year: Cost Retail Beginning inventory$ 30,000$ 45,000 Purchases175,000240,000 Freight-in2,500- Net markups-9,500 Net markdowns-10,000 Sales revenue-205,000 If the ending inventory is to be valued at the lower-of-cost-or-market, what is the cost-to-retail ratio?

a. $207,500 ÷ $285,000
b. $207,500 ÷ $293,500
c. $207,500 ÷ $295,000
d. $207,500 ÷ $294,500
e. 205,000 ÷ $293,500

Answer 1

Answer:

Option (D) is correct.

Explanation:

Given that,

Cost = Beginning inventory + Purchases + Freight in

        = 30,000 + 175,000 + 2,500

        = $207,500

Retail = Beginning inventory + Purchases + Net markups

         = 45,000 + 240,000 + 9,500

         = $294,500

Cost to retail ratio:

= $207,500 ÷ $294,500

= 0.7046

Therefore, the cost to retail ratio is 0.7046.