CHAPTER 9 Flashcards
Terms and important equations or statements from chapter 9
Net realizable value
The estimated selling price of the product reduced by reasonably predictable costs of competition, disposal, and transportation.
Inventory estimation techniques (2)
- Gross Profit Method
- Retail Inventory Method
Gross Profit Method
Uses a cost of goods sold estimate and a cost of goods sold available for sale to obtain an estimate of ending inventory.
When should the Gross Profit Method be used?
When trying to determine the cost of inventory that has been lost, stolen, or destroyed.
When trying to determine the remaining inventory without a physical count.
Budgeting and forecasting.
Gross Profit Method Equation
ENDING INVENTORY + COGS = COGS AVAILABLE FOR
SALE
BGN INVENTORY + NET PURCHASE = GOODS AVAILABLE FOR SALE
GOODS AVAILABLE FOR SALE - COGS = END. INV.
Retail Inventory Method
Uses the cost-to-retail percentage based on a current relationship between costs and selling price.
- used by HIGH VOLUME retailers selling many different items and many different prices
- more accurate
Cost-To-Retail % Equation
GOODS AVAILABLE FOR SALE AT COST / GOODS AVAILABLE FOR SALE AT RETAIL
Initial markup
The original amount of markup from cost to the selling price.
Additional markup
The increase in selling price after the initial markup.
Markup cancelation
The elimination of an additional markup.
Markdown cancelation
the elimination of a markdown.
Cost Flow Methods (3)
- Average Cost Method
- Conventional Retail Method
- LIFO Retail Method
Average Cost Method
The cost-to-retail percentage is based on the weighted average of the costs and retail amounts for ALL goods available for sale.
Conventional Retail Method
Includes all markups but markdowns are NOT included in the calculations of the cost-to-retail percentage.
LIFO Retail Method
The inventory is calculated based on COGS for the newest items in your inventory.
