   Chapter 13, Problem 10RQ

Chapter
Section
Textbook Problem

List the five steps followed under the retail method of estimating inventory.

To determine

List the five steps followed under the retail method of estimating inventory.

Explanation

Retail inventory method: This method is like a gross profit method. It is depends on the relationship between cost and selling price of the product , for the purpose of estimate the value of ending inventory and cost of goods sold.

In simple, retail inventory method is to estimate the amount of ending inventory by subtracting sales from the goods available for sale. It is liable to provide more accurate estimate compare to the gross profit method.

List the five steps followed under the retail method of estimating inventory:

• Determine the cost of goods available for sale at cost as well as retail.
• Estimate the ending inventory at retail (it is calculated by deducting sales from the cost of goods available for sale).
• Calculate the cost-to-retail ratio (it is calculated by dividing the goods available for sale at cost by goods available for sale at retail).
• Determine the cost of ending inventory (it is calculated by multiplying the estimated ending inventory at retail with cost-to-retail percentage).
• Determine the cost of goods sold (it is calculated by deducting the estimated ending inventory at cost from the goods available for sale at cost)...

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