Estimating Inventory Cost

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Estimating Inventory Cost

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Estimating Inventory Cost Retail Method of Inventory Costing based on the ratio of the cost of merchandise available for sale & the retail price of that merchandise ... – PowerPoint PPT presentation

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Title: Estimating Inventory Cost


1
Estimating Inventory Cost
  • Retail Method of Inventory Costing
  • based on the ratio of the cost of merchandise
    available for sale the retail price of that
    merchandise (Cost/Retail .. Value of Merchandise
    Sold)
  • Gross Profit Method of Estimating Inventory
  • Based on the estimated gross profit percentage
    (GP/Sales)

2
Retail Method of Inventory Costing Example
  • Cost Retail
  • Beginning Inventory 500 1,000
  • Net Purchases 1,500 3,000
  • Goods Available for Sale 2,000 4,000
  • Ratio of Cost to Retail 2,000/4,000 50
  • -Net Sales (at retail) 3,500
  • Ending Inventory (at Retail) 500
  • the Ratio of Cost to Retail (above) .50
  • Estimated Ending Inventory (at Cost) 250

3
Calculating the Cost-to-Retail Ratio
  • Assumption A Compute the CostRetail Ratio
    after markups ( markup cancellations) but before
    markdown ( markdown cancellations normal
    shortages) (conventional method since it
    approximates LCM)
  • Assumption B Compute the CostRetail Ratio
    after both markups and markdowns (
    cancellations)

4
Gross Profit Method of Estimating Inventories
Example when GP 50
  • Beginning Inventory 300
  • Net Cost of Purchases 700
  • Goods Available for Sale 1,000
  • Sales for the period 1500
  • - Estimated Gross Profit (_at_ 50) -750
  • Estimated Cost of Merchandise Sold 750
  • Estimated Ending Inventory 250
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