EX 7-21 Retail inventory method

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

                                                                           Cost               Retail
November 1 Merchandise inventory             $ 300,000      $ 400,000
November 1–30 Purchases (net)                   2,100,000       2,800,000
November 1–30 Sales (net)                                                  2,750,000

Answer:

 A B C 1  Cost Retail 2 Merchandise inventory, November 1  $   300,000  $   400,000 3 Purchases in November (net)    2,100,000    2,800,000 4 Merchandise available for sale  $2,400,000  $3,200,000 5 Ratio of cost to retail price: 75% $3,200,000 $2,400,000 =   6 Sales for November (net)     2,750,000 7 Merchandise inventory, November 30, at retail price   $   450,000 
8 
Merchandise inventory, November 30,   at estimated cost ($450,000 × 75%) 
  $   337,500 

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