ACC 333 Lecture : retail inventory managerial accounting.doc

• School: Ryerson University
• Department: Accounting
• Course: ACC 333
• Professor: Douglas King

Document Summary

Retail method is a technique used to estimate the value of ending inventory using the cost to retail price ratio. Cost to retail ratio is calculated using the following formula: B is the cost of inventory purchased including incidental costs such as freight-in; C is the retail value of beginning inventory; and. D is the retail value of goods purchased during the period. The formula given above implies that records of a business using the retail method must show the beginning inventory both at cost and at retail price. Since such information is readily available to retail merchandising businesses, retailers commonly opt to use retail method to estimate the value of ending inventory. Average cost method (avco) calculates the cost of ending inventory and cost of goods sold for a period on the basis of weighted average cost per unit of inventory. Weighted average cost per unit is given by the following formula: