The Alice Company uses the retail inventory method and the average cost flow assumption for preparation of its interim reports.Information about Alice's inventory in the second quarter of 2010 is shown below: $1,300\begin{array}{lll}&\text { Cost }&\text { Retail }\\\text { Beginting inventory } & \$ 255 & \$ 800 \\\text { Purchases } & 600 & 1,400 \\\text { Net markips } & & 200 \\\text { Net markdowns } & & (500) \\\text { Sales } & & 1,300\end{array}$ What is the estimated cost of Alice's inventory on June 30, 2010?

A) $270
B) $300
C) $585
D) $600

Question

The Alice Company uses the retail inventory method and the average cost flow assumption for preparation of its interim reports.Information about Alice's inventory in the second quarter of 2010 is shown below:

1,300\begin{array}{lll}&\text { Cost }&\text { Retail }\\\text { Beginting inventory } & \$ 255 & \$ 800 \\\text { Purchases } & 600 & 1,400 \\\text { Net markips } & & 200 \\\text { Net markdowns } & & (500) \\\text { Sales } & & 1,300\end{array}

What is the estimated cost of Alice's inventory on June 30, 2010?

A) $270
B) $300
C) $585
D) $600

Ngozi Emerenwa · Accepted Answer

Final Answer : A, Explanation :  The cost-to-retail ratio is calculated as (Cost of Beginning Inventory + Cost of Purchases) / (Retail of Beginning Inventory + Retail of Purchases + Net Markups - Net Markdowns). The ending inventory at retail is calculated as (Retail of Beginning Inventory + Retail of Purchases + Net Markups - Net Markdowns - Sales). The estimated cost of ending inventory is then found by multiplying the ending inventory at retail by the cost-to-retail ratio.

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