Dean Company uses the retail inventory method to estimate its inventory for interim statement purposes. Data relating to the computation of the inventory at July 31 are as follows:
Cost Retail
Inventory, 2/1 $ 180,000 $ 250,000
Purchases 1,020,000 1,575,000
Markups, net 175,000
Sales 1,705,000
Estimated normal shoplifting losses 20,000
Markdowns net 125,000
Under the approximate lower of average cost or market retail method, Dean’s estimated inventory at July 31 is:
A.
$90,000.
B.
$96,000.
Incorrect C.
$102,000.
D.
$150,000.
You answered C. The correct answer is A.
First, add the beginning inventory and purchases in the cost column:
•$180,000 + $1,020,000 = $1,200,000
When seeking the lower of cost or market method for the retail method, add, in the retail column, first only the beginning inventory, the purchases, and the net markups:
•$250,000 + $1,575,000 + $175,000 = $2,000,000
Divide these subtotals, to get the cost-to-retail ratio:
.