Question

Marilee's Electronics uses a periodic inventory system and the average cost retail method to estimate ending inventory and cost of goods sold. The following data is available from the company records for the month of June 2016: Cost Retail Beginning inventory $ 80,000 $130,000 Net purchases 261,000 500,000 Net markups 25,000 Net markdowns 35,000 Net sales 520,000 To the nearest thousand, estimated ending inventory is: A. $55,000. B. $52,000. C. $57,000. D. None of these answer choices are correct.

Answer 1

Answer:

$55,000

Explanation:

For calculating the estimated ending inventory we required to do the following computations which are shown below:

Using cost method

Goods available for sale:

= Beginning inventory + Purchases

= $80,000 + $261,000

= $341,000

Using retail method

Goods available for sale:

= Beginning inventory + Purchases  + Net markups - Net markdowns

= $130,000 + $500,000 + $25,000 - $35,000

= $620,000

Now

Cost to retail ratio = $341,000 ÷ $620,000

                              = 0.55

Now

Estimated ending inventory at retail

= Goods available for sale under Retail method - Net Sales revenue

= $620,000 - $520,000

= $100,000

So,

Estimated ending inventory

= Estimated ending inventory at retail × Cost to retail ratio

= $100,000 × 0.55

= $55,000

Answer 2

When the Estimated ending inventory is $55,000 so, Option A is correct

Calculation of Average cost method

For calculating the estimated ending inventory we were required to do the following computations which are shown below:

Now we are Using cost methods are:

The Goods are available for sale is:

Then the formula is = Beginning inventory + Purchases

After that = $80,000 + $261,000

Then = $341,000

Now we are using the retail method

The Goods are available for sale:

Formula is = Beginning inventory + Purchases + Net markups - Net markdowns

Then = $130,000 + $500,000 + $25,000 - $35,000

After that = $620,000

Now The Cost to retail ratio is = $341,000 ÷ $620,000

= 0.55

Then, Estimated ending inventory at retail is:

Applying formula is = Goods available for sale under Retail method - Net Sales revenue

Then = $620,000 - $520,000

= $100,000

Now, Estimated ending inventory is:

Applying formula is = Estimated ending inventory at retail × Cost to retail ratio

= $100,000 × 0.55

Therefore, = A. $55,000 is correct option

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