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Retail Inventory Method Explained

The retail inventory method uses selling prices to value inventory for financial reporting purposes. Under this method: 1. Company uses average retail method - calculates beginning inventory, purchases, additional costs and markups/markdowns at both cost and retail to determine cost of goods sold and ending inventory value. 2. Given beginning inventory values, purchases, markups/markdowns and sales, the ending inventory value using average cost approach is 1,240,000. 3. Emerson Furniture's beginning inventory, purchases and sales for November are provided to calculate the goods available for sale at cost (120,000) and retail (200,000) using the retail method.

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29 views2 pages

Retail Inventory Method Explained

The retail inventory method uses selling prices to value inventory for financial reporting purposes. Under this method: 1. Company uses average retail method - calculates beginning inventory, purchases, additional costs and markups/markdowns at both cost and retail to determine cost of goods sold and ending inventory value. 2. Given beginning inventory values, purchases, markups/markdowns and sales, the ending inventory value using average cost approach is 1,240,000. 3. Emerson Furniture's beginning inventory, purchases and sales for November are provided to calculate the goods available for sale at cost (120,000) and retail (200,000) using the retail method.

Uploaded by

Cedie Torres
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Retail Inventory Method

1. Under the retail inventory method, the term "retail" simply means

A. Purchase price B. Bucket price C. Selling price D. Asked price

2. Company uses average retail method


Inventory Jan 1: 47,075 at cost, 70,025 at retail
Purchases: 213,327 at cost, 306,375 at retail
Freight in: 3,400
Sales: 320,500
Add.’l markups: 11,100
Markdowns: 10,640
Physical inventory Dec. 31 at retail: 39,390
Cost of goods sold before loss on inventory shortage?

a. 24 8,355 b. 231, 798 c. 225, 175 d. 224, 350

3. At the beginning of current year, Cavalier Company reported inventory of P 1,000,000 at retail and P
560,000 at cost. During the current year, the entity registered the following purchases:
Cost 4,000,000
Retail 6,200,000
Original markup 2,000,000
The net sales totaled P5, 400,000. The ff. reductions were made in the retail price:
To meet price competition 50,000
To dispose overstock 30,000
Miscellaneous reductions 120,000
During the current year, the selling price of a certain inventory increased from P200 to P300. This additional
markup applied to 5,000 items but was later canceled on the remaining 1,000 items. What is the ending
inventory using the average cost approach in applying the retail method?

A. 2,000,000 B. 2,400,000 C. 1,240,000 D. 1,200,000

4. Emerson Furniture prepared the following schedule:

Cost Retail
Beginning merchandise inventory 40,000 60,000
Purchases for November 80,000 140,000
Sales in November 180,000
Using the retail method for estimating the value of ending inventory, the goods available for sale at cost and
retail is

a. 40,000 and 200,000 b. 100,000 and 140,000

c. 120,000 and 200,000 d. 120,000 and 320,000

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