Retail Inventory Method

Question 1

What is the retail method?

Answer 1

This method is used by retailers to estimate the cost of ending inventory.

Question 2

How do you calculate inventory method?

Answer 2

1) Ending inventory at retail price
2) Cost/retail ratio
3) Calculate (ending inventory at retail X the ratio in 2
4) Calculate cost of sales

Question 3

Basic structure to calculate ending inventory at retail

Answer 3

Beginning inventory 
\+Purchases 
= Goods available for sale 
- Sales 
= Ending inventory at retail 

Take cost of goods / retail

Multiply ratio by ending inventory at retail

Question 4

Using the basic structure for calculating inventory at retail, what line do you use to calculate the cost/retail ratio?

Answer 4

Goods available for sale

Question 5

When calculating the cost versus retail ending inventory, how is freight-in accounted for?

Answer 5

It is only added to the cost portion NOT retail

Question 6

Are mark downs included in the net purchase calculation?

Answer 6

No

Question 7

Are mark ups included in the net purchase calculation?

Answer 7

Yes, but only for the retail calculation not the cost calculation