“The retail inventory method of estimating inventory cost is based on the relationship of the cost of merchandise available for sale to the retail price of the same merchandise.”
Example: “A business using the retail method of inventory costing determines that merchandise inventory at retail is $900,000. If the ratio of cost to retail price is 70%, what is the amount of inventory to be reported on the financial statements?
Answer is $630,000 = ($900,000 x 70%).”
From this example, you can see that inventory is NOT valued on the balance sheet at retail prices.
September 14th, 2009 at 15:29
False.
“The retail inventory method of estimating inventory cost is based on the relationship of the cost of merchandise available for sale to the retail price of the same merchandise.”
Example: “A business using the retail method of inventory costing determines that merchandise inventory at retail is $900,000. If the ratio of cost to retail price is 70%, what is the amount of inventory to be reported on the financial statements?
Answer is $630,000 = ($900,000 x 70%).”
From this example, you can see that inventory is NOT valued on the balance sheet at retail prices.