On June 30, Joanna Fabrics has the following data pertaining to the retail inventory method. Goods available for sale: at cost $38,000; at retail $50,000; net sales $40,000; and ending inventory at retail $10,000. Compute the estimated cost of the ending inventory using the retail inventory method. The estimated cost of the ending inventory

The estimated cost of the ending inventory is $7,600.

First step

Cost to retail percentage= Cost/Retail price

Cost to retail percentage = 38000/50000

Cost to retail percentage = 0.76

Second step

Cost of sales= Net sales × Cost to retail percentage

Cost of sales= 40000 × 0.76

Cost of sales= 30400

Third step

Estimated cost of ending inventory=38,000-30,400

Estimated cost of ending inventory= 7,600

Inconclusion the estimated cost of the ending inventory is $7,600.

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7600

Explanation:

The estimated cost of the ending inventory would be calculated as thus'

First, we have to calculate the cost to retail percentage which will be:

= cost/retail price

= 38000/50000

= 0.76

The cost of sales would be:

= net sales × cost to retail percentage

= 40000 × 0.76

= 30400

Then, the ending inventory would then be:

= 38000-30400

= 7600

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