The cost ratio in the retail method is found by the cost of

The cost ratio in the retail method is found by the cost of goods available for sale at cost divided by the

(A.) ending inventory at retail

(B.) net purchases at cost

(C.) cost of goods available for sale at retail.

(D.) net sales

Solution

When using the conventional retail inventory method for inventory costing, the following data inputs create the cost/retail ratio formula: beginning inventory at cost and retail, purchases at cost and retail plus the retail value of any markups. First total the beginning inventory and any purchases using the cost of these items. Next total the beginning inventory, any purchases and the value of any markups using the retail value of these items. Next, divide the total value calculated of the cost items by the total value calculated of the retail items. The product of this calculation equals the cost/retail ratio. For example beginning inventory values are $10,000 at cost and 20,000 at retail, purchases total $40,000 at cost and $80,000 at retail and markups totaled $6,000 at retail. $10,000 + $40,000 = $50,000 total value at cost. $20,000 + $80,000 + $6,000 = $106,000 total value at retail. $50,000 / $106,000 = 0.472 for a cost/retail ratio of 47 percent.

Hence,answer is C) cost of goods available for sale at retail