Difference Between Cost and Conventional (aka LCM) Retail is theinclusion or exclusions of Mark-ups and Mark-downs in the Cost toRetail RatioRetail Inventory MethodRetail Inventory MethodITEM:ITEM:Cost to Retail Ratio:Cost to Retail Ratio:Cost MethodCost MethodIncludeMark-upsIncludeMark-upsIncludeMark-downsIncludeMark-downsConventional MethodConventional MethodIncludeMark-upsIncludeMark-upsExcludeMark-downsExcludeMark-downsExclusion of Mark-downs approximates LCM – Why?Exclusion of Mark-downs approximates LCM – Why? Show Items to Consider When Calculating: 1) Cost to Retail Ratio,2) Goods Available for Sale at Cost and Retail, and 3) EndingInventory at RetailRetail Inventory MethodRetail Inventory MethodFreight costsFreight costsPurchasereturns and allowancesPurchasereturns and allowancesPurchasediscountsPurchasediscountsInventory Transfers-inInventory Transfers-inNormal spoilageNormal spoilageAbnormal spoilageAbnormal spoilageEmployeediscountsEmployeediscountsITEM:ITEM:INCLUDE IN:INCLUDE IN:1, 2 (cost only)1, 2 (cost only)1, 2, and 31, 2, and 31, 2 (cost only)1, 2 (cost only)1, 2 and 31, 2 and 31, 2, 31, 2, 333 Retail Inventory - Cost MethodRetail Inventory - Cost MethodP9-8 Solution - Cost MethodCost toCOSTRETAILRetail %Beg. inventory52,000$78,000$Purchases272,000423,000Freight in16,600Purchase returns(5,600)(8,000)Markdowns, net(3,600)Markups, net7,000Current year additions283,000418,400Goods available for sale335,000496,40067.49%Normal spoilage(10,000)Sales(390,000)Ending inventory at retail96,400$Ending inventory at Cost:96,400$x67.49%=65,056$=/ Retail Inventory - LCM MethodRetail Inventory - LCM MethodP9-8 Solution - LCM (CONVENTIONAL) Method:Cost toCOSTRETAILRetail %Beg. inventory52,000$78,000$Purchases272,000423,000Freight in16,600Purchase returns(5,600)(8,000)Markups, net7,000Current year additions283,000422,000Goods available for sale335,000500,00067.00%Markdowns, net(3,600)Normal spoilage(10,000)Sales(390,000)Ending inventory at retail96,400$Ending inventory at Cost:96,400$x67.00%=64,588$=/ Primary reason to use LIFOTax advantages.Results in a better matching of costs and revenues.Theuseof LIFO retail is madeunder two assumptions:1.stableprices and2.fluctuating prices. Stable Prices—LIFO Retail MethodA major assumption of theLIFO retail method is that themarkups andmarkdowns apply only to thegoods purchased during thecurrent period and notto thebeginning inventory.Beginning inventory is excluded fromthecost-to-retail percentage. Upload your study docs or become a Course Hero member to access this document Upload your study docs or become a Course Hero member to access this document End of preview. Want to read all 51 pages? Upload your study docs or become a Course Hero member to access this document Tags Accounting, Revenue, Generally Accepted Accounting Principles, retail inventory, DV LI FO What is the difference between the average cost retail inventory method and the conventional retail inventory method?The Cost/Retail Ratio
The first method, called the conventional retail method includes markups but excludes markdowns. This method results in a lower ending inventory value. The second method, simply called the retail method, uses both markups and markdowns to calculate the ratio.
What is the conventional retail inventory method?The conventional retail inventory method uses a small business's finances as inventory as opposed to products at the company's physical location. The method weighs the price for purchasing products at cost versus how much the business is selling the products for to the general public.
What is the difference between cost and retail accounting?Retail accounting tracks your inventory based on the price that you sell each item to your customers. Cost accounting tracks each item based on the total cost you paid to acquire each item.
What is standard cost method and retail method?There are two common types of inventory systems: the cost method and the retail method. The cost method is based on the cost of the merchandise to the retailer and uses a coded tag system for computation. The retail method is based on the retail value and requires much more extensive bookkeeping.
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What is the difference between the conventional retail inventory method and the cost method?
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