How do you estimate ending inventory using the retail method for Harmony Co. in 2023? 🤔

In 2023, Harmony Co. sold $522,000 of merchandise at marked retail prices. By the end of the year, the following data was available from its records:

At CostAt Retail
Beginning Inventory$129,600$258,800
Net Purchases

Apply the retail method to estimate the ending inventory.


Answer:

To estimate Harmony Co.’s 2023 ending inventory at cost using the retail method, you can follow these steps:

1.Determine the cost-to-retail ratio at the start of the time frame:

Cost-to-Retail Ratio=Beginning Inventory at Cost​/ Beginning Inventory at Retail

2.To estimate the ending inventory at cost, apply the cost-to-retail ratio to the retail ending inventory:


Ending Inventory at Cost=Ending Inventory at Retail×Cost-to-Retail Ratio

Let’s compute now:

Cost-to-Retail Ratio=129,600/258,800≈0.5004

Ending Inventory at Cost=522,000×0.5004≈261,086.40

Thus, Harmony Co.’s predicted 2023 ending inventory at cost, based on the retail approach, is around $261,086.40.

Explanation:

Of course! Based on the facts given, you are asked to estimate Harmony Co.’s ending inventory at cost using the retail method. One approach to inventory valuation, particularly in retail settings, is the retail method.

Below is an analysis of the provided data:

1.Beginning Inventory:

Cost: $129,600

Retail: $258,800

2.Net Purchases during 2023:

Cost: $233,240

Retail: $395,600

3.Sales during 2023:

$522,000 at marked retail prices

Using the retail technique, the ending inventory at retail is estimated at cost by first computing a cost-to-retail ratio at the start of the period and then applying that ratio to the ending inventory at retail.

1.Calculate the Cost-to-Retail Ratio:

Cost-to-Retail Ratio=Beginning Inventory at Cost/ Beginning Inventory at Retail

2.Apply the Ratio to Estimate Ending Inventory at Cost: Ending Inventory at Cost=Ending Inventory at Retail×Cost-to-Retail Ratio

Given the ending inventory at retail, Harmony Co.’s ending inventory at cost is estimated in this instance using the computed cost-to-retail ratio.

Applying the cost-to-retail ratio to the ending inventory at retail yields the anticipated ending inventory at cost for Harmony Co., which is the final solution.

Conclusion:

In conclusion, estimating Harmony Co.’s 2023 ending inventory at cost using the retail technique entails figuring out the cost-to-retail ratio using the beginning inventory at cost and retail. An estimate of the ending inventory at cost may be obtained by applying this ratio to the retail ending inventory. For Harmony Co., the estimated 2023 ending inventory at cost is approximately $261,086.40.

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