Appendix 8A The Retail Inventory Method of Estimating Inventory Costs Retail Inventory Method Given At Cost At Retail Goods available 20500 36000 Markups ID: 233314
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CHAPTER 8:
Appendix 8A
The Retail Inventory Method of Estimating Inventory CostsSlide2
Retail Inventory Method:
Given: At Cost At Retail
Goods available
$ 20,500
$ 36,000
Markups
$ 3,000
Markup cancellations
$ 1,000
Markdowns
$ 2,500
Markdown cancellations
$ 2,000
Sales (net)
$ 25,000
Compute the cost-to-retail ratiosSlide3
Retail Inventory Method
RATIO A:
At Cost At Retail
Goods available
$ 20,500
$ 36,000
Add: Markups
3,000
Less: Markup cancellations
( 1,000)
Goods available $ 20,500
$ 38,000
Cost-to-retail ratio ($20,500 ÷ $38,000) = 53.9%
Ratio A (Conventional retail inventory method) reflects a cost % that includes net markups but excludes net markdownsSlide4
Retail Inventory Method
RATIO B:
At Cost At Retail
Goods available $ 20,500
$ 36,000
Add: Net Markups
2,000
Less: Markdowns
( 2,500)
Markdown cancellations
$ 2,000
Goods Available $ 20,500
$ 37,500
Cost-to-retail ratio ($20,500 ÷ $37,500) = 54.7%
Ratio B incorporates both net markups and
net markdownsSlide5
Retail Inventory Method:
Calculating Ending Inventory
Ending Inventory (at cost) =
Ending Inventory at Retail x Cost to Retail Ratio
Goods Available (at retail) $36,000
Add: Net Markups 2,000
Less: Net Markdowns
(500)
Net Goods Available (at retail) $37,500
Less: Net Sales (at retail)
25,000Ending Inventory (at retail) $12,500
Ratio A = $12,500 x 53.9% = $6,737.50
Ratio B = $12,500 x 54.7% = $6,837.50Slide6
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