33. The Tam Company uses the retail inventory method and the average cost flow a

Question

33.       The Tam Company uses the retail inventory method and the average cost flow assumption for preparation of its interim reports. Information about Tam's inventory in the second quarter of 2004 is shown below:

Cost

Retail

Beginning inventory

$400

$ 600

Purchases

800

1,720

Net markups

320

Net markdowns

(240)

Sales

1,300

What is the estimated cost of Tam's inventory on June 30, 2004?

a.

$550

b.

$480

c.

$428

d.

$520

Cost

Retail

Beginning inventory

$400

$ 600

Purchases

800

1,720

Net markups

320

Net markdowns

(240)

Sales

1,300

Explanation / Answer

Cost to retail ratio = 1,200 / 2,400 = 50%

Ending inventory at cost = $1,100 x 50% = $550

Cost Retail Beginning inventory $400 $600 Add: Purchases 800 1,720 Add: Net markups 320 Less: Net markdowns (240) Total 1200 2,400 Sale price of goods available 2,400 Less: Sales 1,300 Ending Inventory at retail 1,100

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