A company reports the following information regarding its inventory. Beginning inventory: cost is $80,000; retail is $130,000 Net purchases: cost is $65,000; retail is $120,000 Sales at retail: $145,000 The year-end inventory shows $135,000 worth of merchandise available at retail prices. What is the cost of the ending inventory calculated using the retail inventory method

The question is missing the below options:

A.$135,000.

B.$73,125.

C.$78,300.

D.$72,900.

E.$105,000.

The correct option is C,$78,300

Explanation:

                                               At cost                At retail         Cost to retail ratio

                                                $                         $                                            

Beginning inventory              80,000           130,000    

Net purchases                      65,000           120,000    

Costs of goods available   145,000             250,000  145000=250000=58%

Since the cost to retail ratio is 58% and the year end inventory is $135000 in retail prices, the cost o year end inventory can be computed as 58% of retail prices

Cost of closing inventory=58%*$135,000

Cost of closing inventory =$78,300

This implies that the mark-up added to cost is 42%(retail price of 100% minus cost of 58%)

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