Title: Estimating Inventory Cost
1Estimating 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)
2Retail 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
3Calculating 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)
4Gross 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