Question
In: Accounting
Another technique used to estimate the cost of inventory is the Retail Inventory Method. Please define...
Another technique used to estimate the cost of inventory is the Retail Inventory Method. Please define and describe this method. Is this method more accurate than the Gross Profit Method? Can this method be used in preparing financial statements in accordance with GAAP guidelines?
Solutions
Expert Solution
Definition of Retail Inventory Method –
It’s one of the fast and Easy valuation method for retailers that resell merchandise in order to calculate the closing inventory for the given period. Its uses the cost to retail Price to determine the value of goods. It will be useful for those who uses the consistent and equal markup for their products.
Describe method-
Method can be used understood with the below example.
Say ABC ltd sells a Product at an Average Price of $100 and the cost of which is $80. Opening Inventory Balance was $25,000, Sales during the month was $70,000 and Purchase was $50,000.
In order to calculate the closing inventory we need to calculate the cost to retail percentage which is 80%(Cost Price/Purchase Price *100)
COMPARISION WITH GROSS PROFIT METHOD Both methods are used to value the inventory using different approach. In terms of accuracy it depends if markup percentage. If the company uses the consistent markup then Retail inventory method is more accurate, however if the mark up and cost is not consistent then retail inventory method will not be fully accurate. 4.This Method is an acceptable method in prepating financial statements under GAAP and its been used in many industries. |
ekkarill92 answered 2 years agoRelated Solutions
Retail inventory method; various cost methods Sparrow Company uses the retail inventory method to estimate ending...
Retail inventory method; various cost methods
Sparrow Company uses the retail inventory method to estimate
ending inventory and cost of goods sold. Data for 2016 are as
follows:
Cost
Retail
Beginning Inventory
$90,000
$180,000
Purchases
$355,000
$581,000
Freight-in
$9,000
Purchase Returns
$7,000
$11,000
Net Markups
$16,000
Net Markdowns
$12,000
Normal Spoilage
$3,000
Abnormal Spoilage
$4,800
$8,000
Sales
$540,000
Sales Returns
$10,000
The company records sales net of employee discounts. Discounts
for 2016 totaled $4,000.
Required:
Estimate Sparrow’s ending inventory and...
Almaden Valley Variety Store uses the retail inventory method to estimate ending inventory and cost of...
Almaden Valley Variety Store uses the retail inventory method to
estimate ending inventory and cost of goods sold. Data for 2021 are
as follows:
Almaden Valley Variety Store uses the retail inventory method to
estimate ending inventory and cost of goods sold. Data for 2021 are
as follows:
Cost
Retail
Beginning
inventory
$
22,000
$
30,000
Purchases
112,600
175,000
Freight-in
2,500
Purchase
returns
4,500
12,000
Net markups
11,000
Net
markdowns
8,000
Normal
spoilage
5,200
Net sales
162,000
Required:
Complete the...
Sparrow Company uses the retail inventory method to estimate ending inventory and cost of goods sold....
Sparrow Company uses the retail inventory method to estimate
ending inventory and cost of goods sold. Data for 2018 are as
follows:
Cost
Retail
Beginning inventory
$
89,000
$
179,000
Purchases
352,000
579,000
Freight-in
8,900
Purchase returns
6,900
10,900
Net markups
15,900
Net markdowns
11,900
Normal spoilage
2,900
Abnormal spoilage
4,512
7,900
Sales
539,000
Sales returns
9,900
The company records sales net of employee discounts. Discounts for
2018 totaled $3,900.
Required:
1. Estimate Sparrow’s ending inventory and cost of
goods...
Sparrow Company uses the retail inventory method to estimate ending inventory and cost of goods sold....
Sparrow Company uses the retail inventory method to estimate
ending inventory and cost of goods sold. Data for 2016 are as
follows:
Cost Reatail
Begining inventory. $90,000. $180,000
Purchases 335,000. 580,000
Freight in 9,000
Purchase returns. 7,000 11,000
Net markups 16,000
Net markdowns 12,000
Normal spoilage 3,000
Abnormal spoliage. 4,800 8,000
Sales 540,000
Sales returns 10,000
The company records sales net of employee discounts. Discounts
for 2016 totaled $4,000.
Required:
Estimate Sparrow’s ending inventory and cost of goods sold...
Sparrow Company uses the retail inventory method to estimate ending inventory and cost of goods sold....
Sparrow Company uses the retail inventory method to estimate
ending inventory and cost of goods sold. Data for 2021 are as
follows: Cost Retail Beginning inventory $ 83,000 $ 173,000
Purchases 368,000 573,000 Freight-in 8,300 Purchase returns 6,300
10,300 Net markups 15,300 Net markdowns 11,300 Normal spoilage
2,300 Abnormal spoilage 4,405 7,300 Sales 533,000 Sales returns
9,300 The company records sales net of employee discounts. Employee
discounts for 2021 totaled $3,300.
Required: 1. Estimate Sparrow’s ending inventory and cost of...
Sparrow Company uses the retail inventory method to estimate ending inventory and cost of goods sold....
Sparrow Company uses the retail inventory method to estimate
ending inventory and cost of goods sold. Data for 2016 are as
follows: Cost Retail Beginning inventory $ 92,000 $ 182,000
Purchases 360,000 582,000 Freight-in 9,200 Purchase returns 7,200
11,200 Net markups 16,200 Net markdowns 12,200 Normal spoilage
3,200 Abnormal spoilage 4,840 8,200 Sales 542,000 Sales returns
10,200 The company records sales net of employee discounts.
Discounts for 2016 totaled $4,200. Required: 1. Estimate Sparrow’s
ending inventory and cost of goods...
Sparrow Company uses the retail inventory method to estimate ending inventory and cost of goods sold....
Sparrow Company uses the retail inventory method to estimate
ending inventory and cost of goods sold. Data for 2018 are as
follows:
Cost
Retail
Beginning inventory
$
96,000
$
186,000
Purchases
361,000
586,000
Freight-in
9,600
Purchase returns
7,600
11,600
Net markups
16,600
Net markdowns
12,600
Normal spoilage
3,600
Abnormal spoilage
5,520
8,600
Sales
546,000
Sales returns
10,600
The company records sales net of employee discounts. Discounts for
2018 totaled $4,600.
Required:
1. Estimate Sparrow’s ending inventory and cost of
goods...
Sparrow Company uses the retail inventory method to estimate ending inventory and cost of goods sold....
Sparrow Company uses the retail inventory method to estimate
ending inventory and cost of goods sold. Data for 2018 are as
follows:
Cost
Retail
Beginning inventory
$
87,000
$
177,000
Purchases
359,000
577,000
Freight-in
8,700
Purchase returns
6,700
10,700
Net markups
15,700
Net markdowns
11,700
Normal spoilage
2,700
Abnormal spoilage
4,240
7,700
Sales
537,000
Sales returns
9,700
The company records sales net of employee discounts. Discounts for
2018 totaled $3,700.
Required:
1. Estimate Sparrow’s ending inventory and cost of
goods...
Sparrow Company uses the retail inventory method to estimate ending inventory and cost of goods sold....
Sparrow Company uses the retail inventory method to estimate
ending inventory and cost of goods sold. Data for 2018 are as
follows:
Cost
Retail
Beginning inventory
$
81,000
$
171,000
Purchases
375,000
571,000
Freight-in
8,100
Purchase returns
6,100
10,100
Net markups
15,100
Net markdowns
11,100
Normal spoilage
2,100
Abnormal spoilage
4,322
7,100
Sales
531,000
Sales returns
9,100
The company records sales net of employee discounts. Discounts for
2018 totaled $3,100.
Required:
1. Estimate Sparrow’s ending inventory and cost of
goods...
Sparrow Company uses the retail inventory method to estimate ending inventory and cost of goods sold....
Sparrow Company uses the retail inventory method to estimate
ending inventory and cost of goods sold. Data for 2018 are as
follows:
Cost
Retail
Beginning inventory
$
80,000
$
170,000
Purchases
347,000
570,000
Freight-in
8,000
Purchase returns
6,000
10,000
Net markups
15,000
Net markdowns
11,000
Normal spoilage
2,000
Abnormal spoilage
3,705
7,000
Sales
530,000
Sales returns
9,000
The company records sales net of employee discounts. Discounts for
2018 totaled $3,000.
Required:
1. Estimate Sparrow’s ending inventory and cost of
goods...
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