Eaton Couses the Retail Inventory Method to Estimate Its Inventory for for Interim

question 17

Multiple Choice

Eaton Co.uses the retail inventory method to estimate its inventory for interim statement purposes.Data relating to the computation of the inventory at July 31, 2007, are as follows: $\begin{array}{lrr}&\text { Cost }& \text { Retail }\\\text { Inventory, 2/1/07 } & \$ 200,000 & \$ 250,000 \\\text { Purchases } & 1,000,000 & 1,575,000 \\\text { Markups, net } & & 175,000 \\\text { Sales } & & 1,750,000 \\\text { Estimated normal shoplifting losses } & & 20,000 \\\text { Markdowns, net } & & 110,000\end{array}$ Under the lower-of-cost-or-market method, Eaton's estimated inventory at July 31, 2007 is

• A)$72,000.
• B)$84,000.
• C)$96,000.
• D)$120,000.

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Definitions:

Variable Costs

Charges that directly align with the scale of production or the amount of output generated.

Transfer Price

The price charged for goods or services transferred between departments or divisions of the same company or between related entities.

Selling Division

A part of an organization responsible for selling the company's products or services.

Maximum Price

The highest price a buyer is willing to pay or the ceiling price set for a product or service in the market.