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Sagot :
Answer:
b. $187,500
Explanation:
Using the retail method, we calculate the estimated cost of inventory on the 31st of May.
Calculation of retail value of the ending inventory Amount ($)
Retail price/value of the beginning inventory on May 1 (A) 166,667
Retail price/value of the goods purchased during May (B) 313,333
Retail price/value of the goods available for sale (C) 480,000
(C) = (A) + (B)
Total sales during May (D) 230,000
Retail value of ending inventory (E) 250,000
(E) = (C) - (D)
Now calculating the ratio of cost to the price ratio :
[tex]$\text{Cost to reatil price ratio} = \frac{\text{cost}}{\text{retail price}}$[/tex]
[tex]$=\frac{(F+G)}{(H+I)}$[/tex]
Here, F = cost of beginning inventory = $125,000
G = cost of inventory purchased = $235,000
H = retail value of beginning inventory = $166,667
I = retail value of goods purchased during the period = $313,333
The cost to retain ratio [tex]$=\frac{(F+G)}{(H+I)}$[/tex]
[tex]$=\frac{(125,000+235,000)}{(166,667+313,333)}$[/tex]
[tex]$=0.75$[/tex]
Now the estimated cost of the inventory on May 31st = cost to retail price ratio x retail value of ending inventory
= 0.75 x 250,000
= $ 187,500
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