The retail inventory method of estimating inventory uses the ratio of goods available for sale at cost to goods available for sale at retail.

Question

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The retail inventory method is based on the assumption that the ratio of cost to retail price remains consistent over time. This means that the cost of goods sold can be estimated by multiplying the total sales by the cost-to-retail ratio. The ending inventory can then be calculated by subtracting the estimated cost of goods sold from the goods available for sale at cost.

The Retail Inventory Method of Estimating Inventory Uses the Ratio