Lesson: Estimating Inventory - Retail Inventory Method

In this lesson, Nick Palazzolo, CPA, breaks down the retail inventory method, which is particularly useful for retailers such as department stores where there's a high volume of sales with diverse merchandise. He clarifies the presumption of a consistent relationship between cost and retail prices, and walks through the procedure of converting retail prices to a cost basis using the cost-to-retail ratio. By working through the example of Shane Ink's year-one figures, Nick illustrates how to calculate the ending inventory both at retail price and at cost, ensuring the audience grasps the notion of maintaining a cost-consistent inventory evaluation and the significance of fair value measurements within this context. With his typical approachable style, Nick ensures that complex concepts like these become accessible, complete with his trademark light-hearted commentary on his illustrative drawings.