Retail Inventory Method The company reported the following i

Retail Inventory Method The company reported the following information for the month: ractice 9-19 12 Cost Retail 20,000 35000 nd of the $20,000 $0 Inventory, January 1.... Purchases in January. Sales for the month totaled $47,000. Compute the estimated cost of inventory on hand at the month using the average cost assumption.

Solution

Step 1 Retail value of goods available for sale = retail value of beginning inventory + retail value of goods purchased Retail value of goods available for sale = $30000 + $35000 = $65000 Step 2 Cost value of goods available for sale = cost value of beginning inventory + cost value of goods purchased Cost value of goods available for sale = $20000 + $20000 = $40000 Step 3 Cost to retail ratio = Cost value of goods available for sale / Retail value of goods available for sale Cost to retail ratio = $40000 / $65000 = 0.6154 Step 4 Estimated cost of inventory on hand at the end of the month = [Retail value of goods available for sale - Sales] * Cost to retail ratio Estimated cost of inventory on hand at the end of the month = [$65000 - $47000] * 0.6154 Estimated cost of inventory on hand at the end of the month = $11,076.92