The method of estimating inventory that uses records of the selling prices of the merchandise is called the
A) retail method
B) gross profit method
C) inventory turnover method
D) average cost method

Question

Quizplus · Accepted Answer

The retail method is a widely used technique for estimating the value of ending inventory based on the cost-to-retail percentage relationship. It uses records of selling prices and markdowns to arrive at the estimated cost of inventory. The gross profit method uses past financial data to calculate an estimated cost of sales and then subtracts that figure from net sales to estimate the ending inventory. The inventory turnover method is used to identify the rate at which a company sells inventory and needs to reorder. The average cost method calculates inventory value based on the average cost of the inventory items during a specific period. However, none of these methods primarily use records of selling prices to estimate inventory, making A the best choice.

The Method of Estimating Inventory That Uses Records of the Selling