Which of the following statements concerning the retail inventory method of estimating closing stock is incorrect?
A) It can be applied with or without a physical stocktake being carried out.
B) A stocktake is carried out, valued at retail and then converted to cost by applying the historical gross profit percentage.
C) The ratio of cost to retail is goods available for sale at cost divided by the goods available for sale at retail.
D) Differences in the mix of inventory compared to the mix used to determine the cost ratio does not affect the accuracy of the method.

Question

Quizplus · Accepted Answer

Differences in the mix of inventory compared to the mix used to determine the cost ratio can affect the accuracy of the method as it assumes that the cost-to-retail ratio remains constant over time and across all inventory items. If there are changes in the mix of inventory, the cost-to-retail ratio will be affected, leading to potentially inaccurate estimates of closing stock.

Which of the Following Statements Concerning the Retail Inventory Method