Retail Inventory Method

Question 1

What inventory method is used by retailers to estimate ending inventory at cost?

Answer 1

Retail inventory method

Question 2

What 3 basic calculations are used in the Retail Inventory Method?

Answer 2

1. )Ending inventory is calculated or counted at year end
2. ) Cost-to-retail ratio is calculated
3. ) Ending inventory at retail is multiplied by the cost to retail ratio to arrive at estimated inventory at cost

Question 3

What is included in the Average Lower of Cost or Market (LCM) or Conventional Retail Inventory Method cost ratio?

Answer 3

The cost ratio includes beginning inventory, along with current period purchases, in both the numerator and the denominator but excludes net markdowns from the cost ratio calculation

Question 4

What is Original Selling Price in regards to the retail inventory method?

Answer 4

Cost plus initial markup

Question 5

What are Net Additional Markups in regards to the retail inventory method?

Answer 5

A net increase in the original selling price. Net sum of additional markups minus additional markup cancellations

Question 6

What are the variations of the Retail Inventory Method?

Answer 6

1. ) FIFO - excludes cost of beginning inventory from numerator and retail value of beg inventory from denom
2. )FIFO, LCM - Excludes same as FIFO above, plus excludes net markdowns.
3. ) Average - Includes beg inventory along with current period purchases in both number and denominator
4. ) Average, LCM - most common. Includes same as above, but excludes net markdowns

Question 7

In using the Retail Inventory method, which costs are included in the cost column but not retail?

Answer 7

Transportation in, purchase discounts

Question 8

In using the Retail inventory method, which costs are included in the retail column but not cost?

Answer 8

Net additional markups, Net markdowns both before computing the cost-to-retail ration.

Also, Employee discounts, Normal spoilage

Question 9

In using the retail inventory method, which costs are included in both the retail and cost columns?

Answer 9

Purchase returns and allowances, Abnormal casualty losses.