COMM-3016EL Chapter 8A and B: Appendix - Retail Method
14 Mar 2018
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Document Summary
The retail inventory method of estimating inventory cost. Retail inventory method a method of valuing inventory when necessary, where inventory taken at its selling price (retail) can be converted to inventory at cost by applying the cost-to-retail formula. This method requires that the following information be available: the total cost and retail value of the goods purchased, the total cost and retail value of the goods available for sale, and, the sales for the period. It is often used to value inventory if inventory is high volume/low unit cost. This method uses the same formula as the gross profit method; however, it uses retail value (sales) instead of cogs to value ending inventory. Ending inventory at retail value is then converted back to cost by applying the cost-to-retail ratio. Cost-to-retail ratio a ratio used in the retail inventory method determined by dividing goods available for sale at cost, by the goods available for sale at retail.
