Nora uses the cost method to determine its ending inventory at cost. Assume the

Question

Nora uses the cost method to determine its ending inventory at cost. Assume the beginning inventory at cost was $260,000 and at retail was $396,000, purchases during the current year at cost were $1,370,000 and $2,200,000 at retail, freight-in on these purchases totaled $86,000, sales during the current year totaled $2,000,000, and net markups were $48,000 and net markdowns were $72,000, respectively. What is the ending inventory value at cost (to the nearest $1)?

Answer Choices: A) $338,092 B) $371,228 C). $286,804 D). $381,638

Explanation / Answer

Cost to retail ratio = 1,716,000 / 2,644,000 = 64.9%

Ending inventory at retail = Beginning inventory + Purchases + Net markups - Net markdowns - Sales

= 396,000 + 2,200,000 + 48,000 - 2,000,000 - 72,000

= 572,000

Ending inventory at cost = 572,000 * 64.9% = 371,228

The answer is B.

Cost price Retail price Beginning Inventory 260,000 396,000 Purchases 1,370,000 2,200,000 Freight in 86,000 Net markups 48,000 Total 1,716,000 2,644,000

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