Retail Inventory Method Flashcards
What inventory method is used by retailers to estimate ending inventory at cost?
Retail inventory method
What 3 basic calculations are used in the Retail Inventory Method?
- )Ending inventory is calculated or counted at year end
- ) Cost-to-retail ratio is calculated
- ) Ending inventory at retail is multiplied by the cost to retail ratio to arrive at estimated inventory at cost
What is included in the Average Lower of Cost or Market (LCM) or Conventional Retail Inventory Method cost ratio?
The cost ratio includes beginning inventory, along with current period purchases, in both the numerator and the denominator but excludes net markdowns from the cost ratio calculation
What is Original Selling Price in regards to the retail inventory method?
Cost plus initial markup
What are Net Additional Markups in regards to the retail inventory method?
A net increase in the original selling price. Net sum of additional markups minus additional markup cancellations
What are the variations of the Retail Inventory Method?
- ) FIFO - excludes cost of beginning inventory from numerator and retail value of beg inventory from denom
- )FIFO, LCM - Excludes same as FIFO above, plus excludes net markdowns.
- ) Average - Includes beg inventory along with current period purchases in both number and denominator
- ) Average, LCM - most common. Includes same as above, but excludes net markdowns
In using the Retail Inventory method, which costs are included in the cost column but not retail?
Transportation in, purchase discounts
In using the Retail inventory method, which costs are included in the retail column but not cost?
Net additional markups, Net markdowns both before computing the cost-to-retail ration.
Also, Employee discounts, Normal spoilage
In using the retail inventory method, which costs are included in both the retail and cost columns?
Purchase returns and allowances, Abnormal casualty losses.
