July 14, 2022/ Steven Bragg
The retail inventory method is used by retailers that resell merchandise to estimate
their ending inventory balances. This method is based on the relationship between the cost of merchandise and its retail price. The method is not entirely accurate, and so should be periodically supplemented by a physical inventory count. Its results are not adequate for the year-end
financial statements, for which a high level of inventory record accuracy is needed. To calculate the cost of ending inventory using the retail inventory method, follow these steps: Calculate the cost-to-retail percentage, for which the formula is (Cost ÷ Retail price). Calculate the
cost of goods available for sale, for which the formula is (Cost of beginning inventory + Cost of purchases). Calculate the cost of sales during the period, for which the formula is (Sales × cost-to-retail percentage). Calculate ending inventory, for which the
formula is (Cost of goods available for sale - Cost of sales during the period). Example of the Retail Inventory MethodMilagro Corporation sells home coffee roasters for an average of $200, and which cost it $140. This is a cost-to-retail percentage of 70%. Milagro’s beginning inventory has a cost of $1,000,000, it paid $1,800,000 for purchases during the month, and it had sales of $2,400,000. The calculation of its ending inventory is:
Retail Method Advantages and DisadvantagesThe retail inventory method is a quick and easy way to determine an approximate ending inventory balance. However, there are also several issues associated with it, which are as follows:
Terms Similar to Retail Inventory MethodThe retail inventory method is also known as the retail method and the retail inventory estimation method. Lower of cost and net realizable value Inventory is valued at ___ The gross profit method is not acceptable for the preparation of annual financial statements ___ can be used for financial reporting and income tax purposes Changes in the selling prices must've included in the determination of ending inventory at retail Net effect of the additional changes To approximate average cost, the cost-to-retail percentage is determined for __ goods available for sale Conventional Retail Method Applying the retail inventory method by excluding markdowns from the calculation of the cost to retail percentage. Markdowns still are subtracted in the retail column but only after the percentage is calculated. Changes in inventory methods, other than a change to LIFO, are accounted for ____ Contracts that obligate a company to purchase a specified amount of merchandise or raw materials at specified prices on or before specified dates. They protect the buyer against price increases and provide a supply of product. Selling price less any costs of completion, disposal, and transportation Original amount of markup from cost to selling price Increase in selling price subsequent to initial markup Elimination of an additional markup Reduction in selling price below the original selling price Elimination of a markdown The lower of cost and net realizable approach is ___ under GAAP When inventory is written down, the reduced inventory value becomes the new___ The average cost method assumes that cost of goods sold and ending inventory each consist of a __ of all the goods available for sale. Cost of goods available for sale and the retail amounts of goods available for sale When the retail inventory method is used to approximate average cost, the cost-to-retail percentage should be based on the weighted average of: To approximate the lower of average cost and net realizable value, ___ are excluded from the cost-to-retail percentage calculation Ending inventory at retail Using the LIFO retail method, a new layer at retail is determined by subtracting beginning inventory at retail from what? The dollar-value LIFO retail method is an application of the retail inventory method that incorporates changes in the ___ levels A company applies the ___ concept when it applies the same accounting principles from period to period to allow for more comparability. Changes in inventory methods, other than a change to LIFO, are treated ___ Most changes in inventory method are accounted for prospectively When a company applies a retrospective change in inventory method, they must revise beginning ____ ______ to reflect the cumulative income effect of the difference in inventory methods for all prior years When a company changes to the ___ inventory method from any other method, it usually is impossible to calculate the income effect on prior years In the same accounting period it occurred If an inventory error is discovered ____________, the original entry should be reversed and the appropriate entry recorded The balance of retained earnings Errors that affect prior-year income statement accounts are corrected by adjusting ____ LIFO retail method & Dollar-Value LIFO method The dollar value LIFO retail method is a combination of: The retail inventory method and gross profit methods are similar in that they both rely on the relationship between _____ to estimate ending inventory and cost of goods sold Uses the cost to retail percentage based on a current relationship between cost and selling price LIFO FIFO and weighted average The retail inventory method can be used to approximate: A loss relating to a purchase commitment must be recognized when the market price is lower that the commitment price at the time of ____, or at the ____ of the accounting period if the commitment is still outstanding. A net decrease in inventory quantity will result in a ___ of LIFO layers. When there is a net increase in ending inventory quantity When are LIFO layers added to ending inventory? Permits reversal of lower of cost and net realizable value write-downs Does not permit reversal of lower of cost and net realizable value write-downs Before we can determine whether there is a "real" increase in inventory quantity, we need to eliminate the effect of any __ changes. Returns, allowances, and freight must considered under which method? The lower of average cost and net realizable value retail inventory method is also referred to as the ___ retail method. The company must purchase the inventory at a higher than market price If the purchase price decreases before a purchase commitment is exercised: When the commitment price exceeds the market price, inventory should be recorded at ____ price. If inventory values recover after a lower of cost and net realizable value write-down, the write-down can ___ Conventional retail method Method estimates the lower of average cost and net realizable value The retail inventory method tends to be more accurate than the gross profit method because it relies on ___ cost to retail percentages rather than on a ___ gross profit ratio. Ending inventory at ____ is always the same regardless of the cost flow assumption used. Then it must be on hand at the end of the period The gross profit method assumes that if inventory was not sold: Under the LCM approach, market generally was defined as ___ cost. Cost of goods available for sale Ending inventory + cost of goods sold = The lower of cost and net realizable value variation of the retail inventory method generally is used in combination with which cost flow assumptions? Under the retail inventory method, sales discounts are not deducted from sales because it would cause inventory to be ____. Some accountants assert that the lower of cost and net realizable value rule promotes conservatism at the expense of ____ In practice, companies frequently define market as ___ When gross profit is stated as a percentage of cost, it is referred to as the ___ on cost. When markdowns exist, the cost to retail ratio will be lower because under the conventional retail method, the ___ of the ratio is not reduced by markdowns. ___ shortages should be deducted in both the cost and retail columns before the calculation of the cost to retail percentage Under the retail inventory method, if sales are recorded net of employee discounts, the discounts are ___ net sales before sales are deducted in the retail column. T/F Prior period adjustments do not affect current year income When using the retail inventory method which of the following is deducted from the retail column in the same way as sales?Employee discounts should be deducted from the retail column in the same way as sales. 17.
What is included in the costThe conventional retail inventory method includes both net markups and net markdowns to calculate the cost-to-retail ratio.
Which of the following is included in the calculation of the costinterm account 1. What is needed to find the cost of ending inventory in the retail inventory method?Calculating Ending Retail Inventory
The retail inventory method calculates the ending inventory value by totaling the value of goods that are available for sale, which includes beginning inventory and any new purchases of inventory. Total sales for the period are subtracted from goods available for sale.
|
Which of the following is included in the cost column only when using the retail inventory method?
zusammenhängende Posts
Urheberrechte © © 2024 paraquee Inc.
