Concept explainers
1.
Conventional Retail Method: Conventional retail method refers to the estimation of the lower of average cost or market by eliminating the markdowns from the calculation of the cost-to-retail percentage.
In this case, the cost-to-retail percentage will be determined by dividing the goods available for sale at cost by the goods available for at retail (excluding markdowns). Thus, the conventional retail method will always result in lower estimation of ending inventory when the markdowns exist.
To Estimate: The ending inventory and cost of goods sold for 2016 applying the conventional retail method.
2.
To Recompute: The cost-to-retail percentage using the average cost method.
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