Nora uses the cost method to determine its ending inventory at cost. Assume the
ID: 2576337 • Letter: N
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