A sort of inventory estimating approach is the retail inventory method. The retailer employs this technique to calculate both the cost of terminating inventory and the cost of products sold. The retailer keeps track of the products they sell and buy at retail prices.
b. $469,000 . Retail ending inventory: $670,000 Beginning inventory costs $650,000, followed by net purchases of $1,835,000, net markups of $75,000, net markdowns of $45,000, and net sales of $1,845,000.
70% cost ratio (Beginning inventory of $390,000 + net purchases of $1,402,000) $650,000 in initial inventory plus $1,835,000 in net acquisitions plus $75,000 in net markups equals [$650,000]. ending stock at cost: $70,000 multiplied by 70%
Therefore, the merchant can use this inventory approach to calculate the net profit or loss from transactions that were made during the period.
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