Inventory Costing

Question 1

Retail Inventory Method

Answer 1

Cost = beg inv @ + purchases
Retail = beg inv + purchases + net markups

Divide totals to get cost to retail ratio

Subtract sales, normal losses, markdowns from retail total = end inv @ retail.

Multiply this total by ratio

Which is lower? Cost total or retail?

Question 2

FIFO perpetual vs periodic

Answer 2

Will produce same ending inc

Question 3

Lower of cost or market

Answer 3

Market = replacement cost
But has to be lower than NRV (ceiling) and higher than NRV less profit margin (floor).

NRV = sales price less costs to complete & dispose

Ceiling = Sales price LESS costs to complete and dispose
Floor = NRV LESS normal profit
IF replacement cost falls into this range than it is market. If higher than ceiling use ceiling as market