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Lacy's Linen Mart uses the average cost retail method to estimate inventories. Data for the first six months of 2016 include: beginning inventory at cost and retail were $60,000 and $120,000, net purchases at cost and retail were $312,000 and $480,000, and sales during the first six monthstotaled $490,000. The estimated inventory at June 30, 2016, would be: a.$ 68,200. b.$ 55,000. c.$ 71,500. d.$ 63,250.

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Answer:

A) $68,200

Explanation:

Solution

                                           Cost                   Retail

Beginning inventory       $ 60,000          $120,000

Plus: net purchases         $312,000          $480,000

Goods available for sale $372,000          $600,000

Cost-to-retail percentage = $372,000/$600,000 = 62%

Less: Net sales                                        (   490,000 )

Estimated ending inventory at retail       $ 110,000

Estimated ending inventory at cost

(62% x $110,000) $ 68,200

So from the options; option number A) $68,200 is the correct and preferred answer.

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