Retail Method
Omega Signs Uses the Retail Method to Estimate

question 96

Essay

Retail method
Omega Signs uses the retail method to estimate ending inventory in its monthly financial statements. The following information is available for the month ended April 30:
Using the retail method:
$$\begin{array} { | l | r | r | } \hline & \text { Cost } & { \text { Retail } } \\\hline \text { Sales } & & \$ 750,000 \\\hline \text { Inventory, April 1 } & \$ 300,000 & \$ 500,000 \\\hline \text { Net purchases } & \underline { 250,000 } &\underline { 500,000} \\\hline \text { Goods available for sale } & \$ 550,000 & \$ 1,000,000 \\\hline\end{array}$$ (a) Determine the cost ratio that should be used in estimating the Inventory at April 30. $\underline{\quad\quad}$ %
(b) Estimate the cost of the inventory at April 30.$ $\underline{\quad\quad}$

(c) Estimate the cost of goods sold for April. $ $\underline{\quad\quad}$

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Definitions:

Marginal Income Tax Rate

The rate at which the last dollar of a taxpayer’s income is taxed, indicating the percentage of an additional dollar of income that will be paid in taxes.

Tax Schedule

A chart or table that displays tax rates applied to various income levels, dictating how much tax is owed based on income.

Proportional Tax

A tax system where the tax rate remains constant regardless of the amount on which the tax is levied.

Marginal Tax Rate

The percentage at which the next dollar earned of taxable income is subjected to tax.