Garrison company uses the retail method of inventory costing. they started the year with an inventory that had a retail cost of $45,000. during the year they purchased an inventory with a retail cost of $300,000. after performing a physical inventory, they calculated their inventory cost at retail to be $80,000. the mark up is 100% of cost. determine the ending inventory at its estimated cost.

$160,000
$80,000
$40,000
$45,000

Ending inventory cost is 40,000 dollars.

Explanation:

The retail method is used in retail industry for measuring inventories of large numbers of rapid changing items with similar margins for which it is impracticable to use other costing method. The cost ot the inventory is determine by reducing the sales value of the inventory by the appropriate percentage of gross margin.

In above question the ending inventory retail price is 80,000 dollars and company charge mark up of 100%. So based on this method inventory cost is $ 40,000.

Calculation

(80,000/100*50)