Appendix EX 7-25 Retail method

On the basis of the following data, estimate the cost of the merchandise inventory at June 30 by the retail method:


Cost Retail
June 1 Merchandise inventory $ 165,000 $ 275,000
June 1–30 Purchases (net) 2,361,500 3,800,000
June 1–30 Sales (net) 3,550,000

Answer:


Cost Retail
Merchandise inventory, June 1 $ 165,000 $ 275,000
Purchases in June (net) 2,361,500 3,800,000
Merchandise available for sale $2,526,500 $4,075,000
$2,526,500 Ratio of cost to retail price: $4,075,000 = 62%
Sales for June (net) 3,550,000
Merchandise inventory, June 30, at retail price $ 525,000
Merchandise inventory, June 30,
at estimated cost ($525,000 × 62%) $ 325,500