P6.11 # Retail Inventory Method: Estimating Monthly Ending Inventories## OverviewRayre Books employs the retail inventory method to estimate its monthly ending inventories. The following data is available for two of its departments as of October 31, 2020: Hardcovers and Paperbacks.### Department Data#### Hardcovers- **Cost Details:** - Beginning Inventory: $420,000 - Purchases: $2,135,000 - Freight-in: $24,000 - Purchase Discounts: $44,000- **Retail Details:** - Beginning Inventory: $640,000 - Purchases: $3,200,000 - Net Sales: $3,100,000 #### Paperbacks- **Cost Details:** - Beginning Inventory: $280,000 - Purchases: $1,155,000 - Freight-in: $12,000 - Purchase Discounts: $0- **Retail Details:** - Beginning Inventory: $360,000 - Purchases: $1,540,000 - Net Sales: $1,570,000 ### Physical Inventory (December 31)- Hardcovers: $744,000 (retail value)- Paperbacks: $335,000 (retail value)### Instructions**a. Determine the estimated cost of the ending inventory for each department at October 31, 2020, using the retail inventory method.****b. Compute the ending inventory at cost for each department at December 31, assuming the cost-to-retail ratios for the year are 65% for Hardcovers and 75% for Paperbacks.**### Solution Highlight- **a. Hardcover Estimation:** - Ending Inventory: Cost-based estimate at October 31, 2020, is **$488,400**.---This example illustrates applying the retail inventory method to determine the cost estimates and analyze inventory levels efficiently. Understanding cost-to-retail ratios is crucial for accurate inventory valuation in retail settings.

The ending inventory is calculated as the difference between the cost of goods available for sale…

Compute ending inventory using retail P6.11A (LO 6) Rayre Books uses the retail inventory method to estimate its monthly ending inventories. method. The following information is available for two of its departments at October 31, 2020. Hardcovers Beginning inventory Purchases Freight-in Purchase discounts Net sales Cost $ 420,000 2,135,000 24,000 44,000 Retail $ 640,000 3,200,000 3,100,000 Paperbacks Cost $ 280,000 1,155,000 12,000 22,000 Retail $ 360,000 1,540,000 1,570,000 At December 31, Rayre Books takes a physical inventory at retail. The actual retail values of the inven- tories in each department are Hardcovers $744,000 and Paperbacks $335,000.

Compute ending inventory using retail P6.11A (LO 6) Rayre Books uses the retail inventory method to estimate its monthly ending inventories. method. The following information is available for two of its departments at October 31, 2020. Hardcovers Beginning inventory Purchases Freight-in Purchase discounts Net sales Cost $ 420,000 2,135,000 24,000 44,000 Retail $ 640,000 3,200,000 3,100,000 Paperbacks Cost $ 280,000 1,155,000 12,000 22,000 Retail $ 360,000 1,540,000 1,570,000 At December 31, Rayre Books takes a physical inventory at retail. The actual retail values of the inven- tories in each department are Hardcovers $744,000 and Paperbacks $335,000.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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