Union Corp. uses the conventional retail method of inventory valuation. The following information is available:

 Union Corp. uses the conventional retail method of inventory valuation. The following information is available:

Cost    Retail
Beginning inventory    $12,000    $ 30,000
Purchases    60,000    110,000
Net additional markups        10,000
Net markdowns        20,000
Sales revenue        90,000
If the lower of cost or market rule is used, what would be the estimated cost of the ending inventory?

$24,000
$20,800
$20,000
$19,200

Answer

$19,200

 You Answered Correctly!
The cost to retail ratio using the retail inventory method is: [$12,000 + $60,000/($30,000 + $110,000 + $10,000)] = .48.

Ending inventory at retail is $30,000 + $110,000 + $10,000 − $20,000 − $90,000 = $40,000.

Ending inventory at cost, therefore, is .48($40,000) = $19,200.